Finding Money and Making Sales

Businesses usually die when they run out of capital or cash flow, so finding money for the next few months of operations, or of product development, is important. From startup to final sale, there are outside and inside sources of cash and capital your business can use. Types of projects he has worked on include:

• Sales arrangements and documentation;
• IP protection and services contracts;
• Shareholder’s management agreements with initial capital contributions;
• Noncompete analysis;
• Customer prepayment terms;
• Extended time to pay vendors;
• Private placement memorada for securities compliance;
• Asset protection LLC formation;
• International vendor and customer contracts, with associated financing, shipping, and insurance deals;
• Credit card issuer negotiations and analysis;
• Angel and venture capital term sheet analysis;
• Private Equity, Venture, and federal research grant conferences; and
• Venture capital graduate courses, with resulting deals
• Project financing arrangement analysis and bond/other finance house contacts
• Nonprofit bond advice for universities and private developers of dormitories, alumni meeting facilities, and instructional buildings

 

Profits from Sales: This is the best and most reliable source of funds you can use. 64% of all Inc. 500 winners never use outside money, and more than half of them start with less than $25,000 of capital. We’ve helped a lot of businesses sell, deliver, and get paid, including:

Blue Lizard Cosmetics, of Johnson City, Tennessee, was referred to us by a Lombard, Illinois import/export broker. The broker had a customer interested in getting regulatory authority for and distributing cosmetics through drugstores in Saudi Arabia and Egypt. Blue Lizard wanted nothing to do with export regulations or payment risks. We set up sales contracts that let the broker receive orders and divide up the money when paid, so the brokerage fee was paid, all shipping arrangements were made and paid for, and Blue Lizard could ship freight on board (FOB) their dock, with no insurance, customs, payment, or customer relations staffing costs or risks. Sales plus profits, no advance costs: a perfect contract.

Centrance, Inc., a hardware/software manufacturer and consultant in the sound industry (speakers, drivers, control board on a USB, etc…) used our Master Services Agreement and Statement of Work templates to contract with more than 130 customers all around the world. They also retained intellectual property rights  for code and ideas they researched, and now manufacture and distribute more than seven products using that IP. Michael Goodman, their CEO, said:

“Bill Price is our lawyer of reference at Centrance. He’s helped us with intellectual property, software and hardware development contracts, and other business law issues. I would recommend him to anyone as a thorough, effective counselor.”

Your Money And Your Life

A startup business, properly run is an all-consuming passion. To help avoid flameout, we’ve helped owners with projects like these:

Startup Setup And Initial Cash Contributions:

A group of airline software developers were ready to move to Finland to start applying something like the code sets they had worked on together here to customer scheduling, price changes, and other high volume website changes for an airline there. We provided advice on making sure the IP was new, novel, non-obvious, and useful (and therefore patentable), as well as on their lack of non-compete obligations to former clients. We also advised them on a shareholder’s management agreement that provided for capital contributions, division of profits, allocation of management and agency authority, and intra-group dispute resolution.

Asset Protection:

A Web chat operator service and software provider needed to keep company assets safe from the CEO’s former spouse but also needed a US company home to separate sales and taxes here from home base operations and IP based income in Pakistan. We organized an Illinois limited liability company that deals with subcontractors all over the world, pays IP and services fees to a Pakistan development and operations group, and transferred company ownership to the CEO once the former spouse’s claims lapsed with time. Contracts with French speaking (Ghana based)operators and EU based sales partners have also helped the company grow. We also helped to change US banks from an inflexible large bank to another one more comfortable with multi-country transactions.

Credit Card Issues:

Maxed out credit cards are a default financing option for many startups that have used up all money available from friends, family, and fools. We have helped online sellers of Italian and other European foods with a US website to deal with inappropriate customer contests of charges for things they clearly ordered with improvements in click-through sales agreements that let the site recover these merchant account provider fees along with lawyer’s charges and other costs of collection. For other sites, we have identified opportunities to switch to providers with lower per sale percentage charges, more reliable servers, and sales tax free state locations. Have also advised on cash advance credit card (with 60 days to pay) options like Amex Plum cards and “half what you have in the bank account” cash based nonbank bank financing.

Factoring and Asset-Based Bank Financing:

The easiest type of financing to qualify for is based on your customer’s credit. Factoring houses and brokers help you work with funds that buy your accounts receivable or purchase orders. The amount you can get depends on the credit of the customer who issued the P.O. or is willing to verify that they are willing to pay your account receivable. You can usually sell an invoice for 80% of purchase order, or 90% of account receivable amounts. The broker places the sale, charges a commission, and sets up repayment terms which usually amount to about 1.5% per month paid to the funds source.  Any amounts collected over these fees go to you. Good factors (the brokers) usually also help you evaluate and manage the quality of your accounts receivable. Factoring works well if you have an order to cash (they order, they pay you) cycle of 90 days or less.

With two or three years of experience of factoring-based sales and credit management, your company can graduate to asset-based bank financing. Same receivables or purchase orders, SBA or lower loan interest rates. We have worked with several different clients to provide factoring and asset based lending source quotes over the years, including:

• A tomato paste importer who worked with Freeman Funding Solutions, LLC to get quotes for factoring US sales through a Chicago-area distributor who paid cash when goods were delivered to their warehouse.
• Several companies referred to Naperville, Illinois-based Prairie Business Credit, including a builder of expeditionary hotel bases in Mali with a P.O. from the German army.
• A Bolingbrook, Illinois vendor of used jet engine blades, who we and Freeman Funding Solutions introduced to two SBA Export Express certified banks. The federal loan guarantee and the client’s track history made asset based funding quotes available.

SBA Loans:

United States Small Business Administration (SBA) guaranteed loans are the normal form of working capital, asset based inventory or order cost financing, purchase and sale of business financing (7a program, up to $5 million per deal), and (for smaller deals the Export-Import Bank of the United States does not guarantee) for U.S. exports to other countries. We have worked with clients to get loan offers from 5/3 bank, Harris Bank, Wells Fargo bank, and other SBA certified banks and community development finance organizations (for SBA 504 loans, available up to $1.5 million per deal) in Illinois.

Vendor And Customer Credit:

Your vendors and customers can be important sources of financing. We have worked with companies like Diamond Dust Dreams, of Warrenville, Illinois, which ran two Kickstarter campaigns that included several months advance payment by customers to let them launch board game products. For vendor financing, we have helped companies get extended payment terms (60 or 90 days are common) from lease companies, inventory sources, and even “venture capital” billing terms (services for equity or a promise of future purchase exclusivity) for some very cash short startups.

Angel Capital:

The definition of securities fraud, in both federal and Illinois law, is failure to disclose all facts material to an investment before an investor commits his or her money. This does not mean that your investors need to read all the facts before they are interested in buying. It does mean that a comprehensive Private Placement Memorandum containing financials, competitors, and all other relevant facts (and proving, by signed and dated receipts, that the prospective investors have received them) is, along with subscription agreements and proof investors are “accredited” (institutions or rich individuals), important insurance against angry millionaires if your deal doesn’t return the billions in profits every investor hopes for from a new technology. We have prepared PPM’s and associated corporate documents, SEC and blue sky filings, and loan agreements for clients like:

• A Carbondale, Illinois data visualization and non-relational database vendor, raising money in Massachusetts and Illinois.
• A possible short track speedway for the west side of Chicago, Illinois.
• An Internet television program production company.
• A soy biodiesel production plant (for which we also prepared a sales contract, when the PPM produced some, but not all the capital needed, so a buyer had to be found to keep the deal alive.)

Project Finance And Bond Packaging:

We have also assisted with project finance analysis and issuer’s counsel legal documentation project scoping for private gymnasiums (private placement bond recommended), medical office developments (ditto), an interstate toll road (where national finance placement and good local political cover could not make up for a last-minute pullout by an engineering firm.), and a regional bridge to a rapidly growing railyard/port development. Have also helped identify and contact possible sources and finance brokers or investment banking houses for nursing home expansion. Underwriting houses we work with can consider any project with a cost of over $10 million and a creditworthy issuer. Church loan sources have been found and negotiated for mid-size and large church and parachurch organizations. Universities and developers have been advised on nonprofit bond issuance and backup finance house underwriting for dormitories, alumni meeting facilities, and new instructional facilities.

Venture Capital And Private Equity:

Venture Capital funds tend to be committed to early (and, especially, to follow on rounds) funding for technology-based companies with over $1 million per year in sales and a good chance of reaching $1 billion or more in market capitalization (“unicorn”) status. Small and Mid-Market Private equity deals, by contrast, are those with funds that usually buy companies with $10-50 million per year in sales, and an established track record. Bill has organized University of Chicago-Booth Entrepreneurship Roundtable sessions whose speakers have represented as much as $4 billion in investible capital per session, a private equity speaker (Jeff Gonyo, of Geneva Glen Capital) who took a client from $1 million to $1 billion in sales through financing 13 years of acquisitions), and hosted many years of Midwest Entrepreneurs Forum and CEO Series meetings where startups pitched their business plans to angels, venture capital sources, potential partners, and customers. He also organized several years of conferences on Small Business Innovation Research (SBIR and STTR) grants that all federal agencies with research budgets of more than $100 million must fund, with 8 out of the 10 grant-making agencies as participants, and 31 university or tech development center cosponsors.  He also taught the venture capital course at the Illinois Institute of Technology Stuart graduate school of business from 1998 to 2008. Student projects were funded or students got corporate project placements in Bangalore, Illinois, and California.

Call or email us if your group needs problem identification, management, or solutions.  Tel. 1-800-630-4780, email wprice@growthlaw.com.