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As a potential customer of Acorn Partner's family of Sales Driven Financing© products, the following material provides you with an overview of working with us.
An important part of any relationship between two or more parties is that each contributes something. This is certainly no less true for a financial one. Acorn Partners will provide you with the money you require and ongoing advisory services. What you bring to the relationship is sales or the prospect of sales to credit worthy customers.
Another important aspect is trust. In the early stages of conducting business with us, the relationship is usually limited to invoice financing, or in the case of technology companies advances on SR & ED refund claims. As mutual trust builds you become eligible for the other products.
A third aspect of the relationship is development. With this in mind, the Sales Driven Financing© family of products has been designed to allow you to grow your business over the longer-term. We give you access to products designed to provide you capital with risk profiles that vary according to your ability to complete the work needed to secure payment.
Thus, one of the primary benefits of your working relationship with Acorn Partners is that it has the potential grow. The following paragraphs describe how you can progress from securing funding through the sale of invoices or SR & ED claims to securing our equity financing-a variety that does not involve the sale of shares.
Federal and Provincial Scientific Research and Experimental Development tax credits are available for up to 60% of your qualified research and development expenses. Acorn Partners provides advances on these credits, provided they are worth more than $10,000. We have and do purchase refunds in the six-figure range.
Our SR & ED service gives you access to your tax credit refund when it is most needed-for example, when you are faced with a large and important order and need funds to complete it.
Acorn Partners will purchase your invoices and advance you funds the day after you have provided your service or delivered your product to the satisfaction of your customers. The amount you get depends on the value of the work you have done and invoiced for.
Invoice discounting costs between $1.00 and $2.00 per day per thousand dollars worth of invoices. The price is flexible because it depends on the creditworthiness of your customers and the length of time it takes for them to pay. The exact amount is established in a term sheet we will provide.
Financing With a Difference
A traditional bank lending relationship requires you to repay the funds you've borrowed, even if your customer is bankrupt. Because we verify in advance that your customer has the ability to pay, we assume that risk. Naturally we will accept only those customers who have good credit.
Another distinct advantage of invoice discounting is that you do not have to spend your time begging for early or even prompt payment to meet your cash needs. Instead, you spend your time doing what you do best, like best and most importantly, what makes you money-selling. Because you have contracted out the work required to make sure the invoice reaches your customer and that they pay it, you have more time to find new customers and sell more to current ones. The financial logic behind this statement is seen in the Financial Impact Calculator.
Opening Your Account
There are two basic steps involved in selling your invoices to Acorn Partners:
- starting the relationship; and,
- securing ongoing advances of funds
Our first step is to establish your firm's exact legal identity as well as that of your customers. We also ensure that you have the legal ability to sell us invoices. If you have a line of credit with a bank we secure their co-operation. This is usually not a problem since in our experience, banks are almost always glad to see you have another backer.
The information we need is listed in the invoice discounting section of How to Open an Account with Acorn Partners. It usually takes you a day or two to assemble it. We require about the same period of time to process it.
At this point we can begin to deal with the financial substance of the relationship. We start with a review of the contract or purchase order, if one is in place or proposed. Your invoice format is also considered and we ensure that it contains an interest-based late payment penalty and that you have included wording to the effect that if your customer is satisfied they will pay in full.
Because the critical factor in our relationship is your customer's ability to pay, we do a credit check on each one to prove that they have the ability to cover the amount you invoice them. This is done online through an independent agency, American Credit Indemnity/Atradius and we are often able to get an answer in minutes.
Once you have entered into a contract with us, your customer will need to be informed that they will be paying Acorn Partners instead of you. You lead this aspect of process by sending our letter of introduction to your client. It should be featured on your letterhead over your signature.
The key point to emphasize when speaking with your customer is that nothing changes for them other than the person they pay. In addition, proactively seeking evidence of your customer's satisfaction on each invoice by use of an approval clause on the invoice or on a separate form proves your commitment to quality. It also heads off trouble.
Dissatisfied customers all too often do not want to deal with an invoice and put the whole matter (your invoice) at the bottom of the pile. Getting the sign-off on each invoice is an opportunity to measure customer satisfaction directly and continuously. When customers know that you only expect to be paid for good work they are impressed.
With each disbursement from us we include a detailed statement that includes the invoices you sold and the amounts we paid for them. Payment is in two stages. The initial disbursement is for the value of the invoice(s) minus two amounts; the discount taken for the expected payment time and a reserve for shorter or later than expected receipt of payments. When we are paid in full and on time you get a second payment for the amount of the reserve.
If your business has been growing at rates of 30 percent plus for two or three years in a row, your bank may be having difficulty meeting your financing needs. Although high, such growth rates may not be sufficient to warrant venture capital investment. Alternatively, as an entrepreneur, you may not want venture capital because you would prefer to retain ownership and the ability to direct the business. If this is your situation, Acorn Partner's Purchase Order Financing (P.O. Financing) can help.
P.O financing is similar to Invoice Discounting. Both involve an advance on incoming funds and once the credit worthiness of those placing the order has been established, we can provide you with it quickly.
There are two major differences. First, you can obtain P.O financing even though you have not yet filled your customer's order. Second, the advance is limited to about 50% of the total order value. This figure is used when there are several orders to be completed and no one of them makes up more than fifty percent of the total value of the orders.
Paying cash upfront for assets that will produce revenue for several years creates an undue and often unnecessary drain on cash flow. In short, it can shake a business to its core.
Consequently, banks give term loans for physical assets such as buildings or computers. This type of loan can be paid back over several years and the banks usually take the purchased assets as security.
However, when acquiring soft assets such as a customer list term loans are often not available. This is mainly because they are not seen as providing a basis for security.
Where a business has recurring monthly billings to customers, Acorn Partners can provide a soft asset term loan equivalent. In exchange for advancing the funds, you agree to sell us your billings (at a discount) each month with the balance declining monthly for a period of years.
On occasion, privately held firms encounter growth opportunities that can best be financed by obtaining capital from investors willing to take risks beyond those associated with invoice discounting or purchase order financing.
However, the opportunity does not meet the key criteria of the venture capital community. For example the amount needed may be only $50,000 to $500,000-well off the radar screen for most venture capitalists. In addition, venture capital firms need to see cash for their investment within five years, (an exit) be it by way of an initial public offering (IPO) or acquisition by another firm.
Just because the opportunity does not meet venture capitalists' criteria does not mean that it is not profitable. In some cases, the potential return on capital could be in excess of thirty to forty percent per annum. The problem is that obtaining financing through venture capital structures is inappropriate.
Acorn Partners has devised a method of investing in these "middle of the road" opportunities. In keeping with our sales-based approach to financing, we depend on the revenues of your business to make a profit on our investment. To do this we tap your sales through a royalty system. We defer any return on the capital invested until the business exceeds a predetermined breakeven level of sales. Each year thereafter, provided the business exceeds the established breakeven level of sales, Acorn Partners obtains an amount equal to its investment.
This method of investing has the advantages of selling shares without some of the disadvantages. From the entrepreneur's perspective there is no sale of shares, just a predetermined annual amount. This saves money because when the business does very well its owners retain most of increased value. Nor is there a battle over valuation of the business. However, like common shares, if the business does not attain its break even level, there is no obligation to further drain cash out of the firm. Thus while the risk is shared, there are rewards for superior entrepreneurial performance.
Obtaining this form of financing from Acorn Partners is based upon your relationship with us. It is developed through the use of one or more of our other financial products. When we are approached for this type of financing, our concerns focus on how you run your business. In particular, we are interested in your sales capacity.
We are of course also interested in who works for you. Using the profiling tool contained in Now Discover Your Strengths, we will create a profile of the personal strengths of each key member of your company. This ensures that their roles and strengths are a natural fit. Next we conduct an in depth examination of your selling process and the capability of your staff. (There is a fee for this paid to the party conducting the work) Based on the report's findings we work with you to develop an action plan to strengthen processes and skills. The funds required to obtain suitable sales training and coaching are included as part of the investment.
When we are in agreement on your firm's outlook and ability to implement the necessary activities to breakeven and then become profitable, we enter into a legal agreement that sets out the terms of the funds advanced and the conditions under which they are to be returned.
A key term of the agreement covers what happens if you wish to sell the business. Basically, we agree that if you want to do so, you pay us the capital advanced if it has not already been paid, plus the value of the income stream we will no longer receive. It is discounted at second mortgage rates.
Entrepreneur's Advantages
The "Equity" member of Acorn Partners family of Sales Driven Financing© products has several advantages for the entrepreneur.
It:
- provides patient capital for growth on financially favourable terms comparable to the sale of common shares.
- avoids prescribed debt payments when sales and hence ability to repay are uncertain.
- side steps the confrontation over the value of the business when it can only be a matter of opinion and judgment.
- has low legal and accounting costs associated with its acquisition.
- removes one of the main barriers to securing angel investment because it addresses the issue of how the investor obtains an "exit."
- avoids divergence between the owner's and investor's long-term goals: the creation and operation of a profitable business.
- ensures that at the outset, both the entrepreneur and investor focus on the key question: will they make money?
Investor's Advantages
The "Equity" member of Acorn Partners family of Sales Driven Financing© products has several advantages for the investor.
It:
- saves you the hassle of having to price in the impact of additional rounds of capital provided at a later date by organizations with the power to negate the return of capital and return on capital.
- permits you to do a number of smaller deals enabling you to build a portfolio of relatively independent revenue streams with a given amount of capital.
- reduces the odds of losing capital on any one investment.
- removes the potential for confrontation over the value of the business when making the investment.
- ensures that the entrepreneur looks closely at their prospects of making money since their priority is making payments to investors.
- removes the risk associated with the IPO market and the acquisitions market.
- minimizes the transaction costs associated with the business using the capital invested.
- allows for the possibility of capital gain if the owners sell.
- most importantly, it provides for active risk mitigation in management's ability to execute, particularly in the sales effort-traditionally a weak spot.
SDF Royalty, Purchase Order Financing, and Asset Acquisition Financing are custom tailored to the situation at hand. In certain instances we are able to combine products to better fit your needs. Please contact us to discuss your requirements. The consultation is free of charge.
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