Archive for June 2014

Financing Tips for Food Distributors

One of the financial concerns of companies within the food industry has been financing for food distributors. While inventory in other industries can lose value over time such as clothing, electronics, and furniture, inventory in the food industry has an expiration date. Lending to the food distributors has not been easy over the last 4 to 5 years. Many lenders are not familiar with sales cycles and turnover rates. Such lenders are more likely to understand and value those assets and provide greater liquidity and flexibility. Traditional banks may not be the best source in providing financing for food distributors.

A Line of Credit

A business line of credit is probably the best option. However, business lines of credit are not easy to qualify for. However, today there is an array of alternative lenders providing business lines of credit at a higher cost. The convenience of a business line of credit is that you will only pay over money you utilize. If you can obtain a business line of credit with a bank, your cost of capital will remain very low.

Factoring

Factoring is another solution. Many food distributors turn to factoring. The challenge that factoring has is that it takes time to process and there is double underwriting process. If you are seeking factoring not only does your company need to qualify but the companies that owe you money as well. You may be approved but the company you sell to may not be approved. Factoring companies request financial documents not only from you, but from the companies you sell to. Imagine the amount of paperwork that is required. In the end factoring is a good solution.

Cash Flow Lending

Cash flow lending is becoming more popular every day. While some business owners know it as a cash advance or a daily payment loan, this is one of the fastest solutions. The process is fast and simple. Most cash flow lenders can provide you with a loan approval within 2 business days. If you can turn around inventory in less than 30 days and make a 20% profit; these loans may be your solution. They tend to be costly. The average rate can range from 1.5% to 3.5% per month. However, if you can make 20% return every month and pay 3%, you will still come out ahead and yield a 17% return without utilizing your own capital. The rates are very similar to factoring, the difference is the payment collection process.

There are other solutions. These are some of the best alternatives to consider when seeking financing for food inventory.

How to Set Up a Budget to Manage Family Expenses

There are essentially 5 types of expenses that you will need to allow for when you are setting up your budget.

  • Fixed Monthly expenses
  • Variable Monthly Expenses
  • Fixed Annual expenses
  • Variable Annual Expenses
  • Variable irregular expenses

1) Fixed Monthly Expenses

These are the easiest expenses to account for and include bills such as electric, phone, car finance, mortgage etc. You know in advance, exactly how much the expense will be every single month.

2) Variable Monthly Expenses

This category will include things like groceries, entertainment, kids extra curricular activities, hair cut’s, beauty treatments, etc.. It will be something that you have to pay for but how much you will have to pay can vary from month to month.

3) Fixed Annual expenses

In this category, you would include things like car insurance, property Tax, home insurance and life insurance and any other annual bill that is pretty much a fixed price item.

4) Variable Annual Expenses

This category would cover events like, Christmas, birthday’s, family occasions or celebrations of any sort. You know they are coming, they happen every year but you are not exactly sure how much they will cost.

5) Variable irregular expenses

This can be the trickiest category to grasp. These are things that you have to pay for, but you do not know when or how much. This can include car repairs, tires, clothing, medical bills.

Once you have a complete list of all your expenses, you start by listing all your fixed monthly expenses. Next you list all your variable monthly expenses for the upcoming month. You should have a good idea of how much you will be spending this close to the event. You will then enter an item called “Fixed Annual Expenses” and the amount of this will be the total of all your fixed annual expenses, divided by 12 months. You will then need to estimate the cost of your variable annual expenses and again create a budget item with this name and the amount is the total estimate divided by 12 months. The next category is for your Variable irregular expenses and again you will need to create an estimate of these costs. this can be done best by going through receipts from previous years, but if these are not available, you must put your best guess beside each one and again divide the total by 12.

It should be noted that when dividing these categories by 12, we are ignoring the fact that some will be due sooner that others. I have found that calculating on this basis works just fine for most people. If it does not work for you, you will need to divide each individual annual expense by the amount of months due until that expense must be paid and then total those results up.

I personally have just one single category in my main monthly budget for all annual and irregular expenses and every month I transfer this amount to a separate account, which I use to pay for these expenses. In addition to this, I have a separate sheet detailing each annual an irregular expense. It is this total that goes back into the main budget sheet.

I hope this gives you some ideas for setting up the most accurate budget that you possibly can.