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1.0 Executive Summary
The purpose of this business plan is to chart the development of a factoring company based in Sacramento, California. Factoring Company, LLC (“the Company”) was founded by Peter Robbins. The business will specialize in acquiring accounts receivables and invoices among healthcare, trucking, logistics, and legal service providers throughout the United States. At this time, the Company is seeking a $2 million investment in order to commence operations.
1.1 The Services
The business, as the central part of its operations, will acquire invoices at 85% to 90% of their face value depending on the risks associated with the underlying client. The business will then collect the full amount of the invoice. The risk that the Company will take is that the invoice may not go paid, which would result in a bad debt.
However, the Company will employ a number of procedures and protocols in order to ensure that the underlying client has the capability to pay the invoice prior to the acquisition of the receivable. The business will use state-of-the-art software to manage all incoming invoices and collections.
The third section of this document will further discuss the operations of the business.
1.2 Financing
At this time, Management is seeking a private investment of $2,000,000 in order to launch full scale operations. An investor will receive an equity interest in the business, which will be determined during negotiation. Principally, the funds will be used for the following:
- Capital to acquire invoices and accounts receivables
- General working capital
- Initial marketing operations with a focus on the healthcare, legal, and transportation sectors
- Location development in Sacramento
As the business builds its portfolio of collectable invoices and receivables, the Company may seek to acquire a working capital line of credit in order to leverage its equity position. Given the economic stability of these businesses, the Company may also acquire additional rounds of capital from private investors or hedge funds looking for above market rate returns.
1.3 Mission Statement
The Company’s mission is to provide comprehensive financing solutions for entities involved in healthcare, law, and logistics/transportation.
1.4 Management Team
Peter Robbins has more than fifteen years of experience in the field of commercial finance. He will be able to leverage his experience and expertise to develop this into a highly profitable factoring company.
1.5 Sales Forecasts
1.6 Expansion Plan
Over the next three years, the Company will reinvest its after-tax cash flow into the acquisition of new receivables and invoices. The business, if it acquires a working capital line of credit, may also acquire additional types of receivables such as structured settlements and mortgage notes.
2.0 Company and Financing Summary
2.1 Registered Name and Corporate Structure
Factoring Company, LLC.
2.2 Required Funds
Mr. Robbins is seeking $2,000,000 in order to commence AR and invoice acquisition operations.
2.3 Investor Equity
Mr. Robbins intends to sell a negotiable equity interest in the business coupled with ongoing distribution of profits.
2.4 Management Equity
At this time, Peter Robbins is the full owner of the business. This will change once the requisite capital has been acquired from an investor or group of investors.
2.5 Exit Strategy
Based on the profitability of this business, the Company could be sold for up to five times the previous year’s earnings. This valuation may be higher depending on the performative nature of the Company’s operations, especially if structured settlements or other types of cash flow notes are acquired in the future.
3.0 Operations
The Company’s primary focus will be to work with healthcare, legal, and transportation entities. Management has chosen this focus as these industries typically have low rates of default and bad debt related to their invoices and accounts receivable. As stated earlier, the Company will acquire these invoices and accounts receivables at a face value of 85% to 90%. This will allow the Company to earn substantial profits once the invoice is paid in full. Typically, Management anticipate that it will take 30 to 60 days to collect on most invoices. However, there will be limited situations where this range will be extended to 120 days (especially among clients that frequently work with very large corporations).
The Company, through all facets of operations, will use state-of-the-art credit analysis, risk analysis, and collections management software. This will substantially reduce issues with bad debts, which will inevitably occur from time to time. The Company further expects that will produce revenues equal to its capital base on a per annum basis.
Factoring Company, LLC will employ a number of highly qualified risk management experts and accountants to further ensure that the underlying portfolio remains cash flow positive at all times.
4.0 Strategic and Market Analysis
4.1 Economic Outlook
As it relates to the current economic climate, the economy is doing reasonably well. Interest rates, while still at higher levels, are starting to decline as the monetary policies implemented by the US Federal Reserve. It is expected that there will be a further normalization of interest rates in the future.
However, any issues with the economy will only have a modest impact on the demand for factoring services. This is due to the fact that smaller to medium sized enterprises depending on factoring in order to keep a positive cash flow. The demand for these services typically increases during difficult economic climates given that they are able to assist these entities.
The Company, in regards to its operations, will retain proper legal counsel in order to ensure that the business complies with all federal and state regulations. Currently, there are no pieces of proposed legislation that would impact the operating methods to be employed by Factoring Company, LLC.
4.2 Industry Analysis
There are approximately 1,000 companies that provide invoice factoring and accounts receivable acquisitions. Each year, these entities produce over $4 billion of revenue. It should be noted that aggregate revenues may be higher given that some of these businesses also acquire cash flow notes.
This industry is expected to continue to undergo significant growth over the next five years. As the number of businesses within the United States continues to increase, the demand for specialized finance solutions will continue to grow as well.
4.3 Customer Profile
Among companies that will engage the Company for factoring services, the following profile is noted:
- Operates as a small to medium sized business within the healthcare, legal, or logistics industries
- Principally conducts business in Northern California
- Annual revenues ranging from $500,000 to $5,000,000
- Will divest $50,000 to $100,000 per round of financing with the business
Here, you should further indicate the specific types of industries that your factoring company will target through its operations. You can also include a discussion regarding the credit criteria that will be employed as part of your overall risk management operations.
4.4 Competition
Given the ubiquitous nature of the internet, factoring companies and invoice acquisition firms are able to provide their services to the entirety of the United States. As such, the primary way in which these businesses compete is by providing better financing terms when invoices and accounts receivable are acquired.
In this section, you should showcase the reasons why a client would use your factoring firm versus competitors. Primarily, you can focus on the fact that your highly controllable operating costs will allow for lower financing rates (or higher face value purchases of underlying receivables). You can also discuss how you will focus on a specific niche within the factoring industry. As shown in this document, the underlying assumption is that the Company will only work within low risk industries such as healthcare, law, and logistics.
5.0 Marketing Plan
Management has developed a number of marketing strategies that will facilitate the rapid onboarding of clients that will use the Company’s factoring services. These strategies will be expanded upon throughout the life of the business.
5.1 Marketing Objectives
- Implement numerous online marketing strategies that target small to mediums sized businesses.
- Conduct advertisements among publications that focus the healthcare, legal, and logistics industries.
- Use targeted advertisements among numerous social media platforms.
5.2 Marketing Strategies
Factoring Company will use numerous marketing strategies in order to create brand name awareness. Given the ongoing demand for small to medium-sized businesses to have access to capital when needed, the marketing budget does not need to be substantial as compared to the anticipated revenues of the business. At the onset of operations, the Company will work with marketing firm to place ads among publications that are geared towards the industries discussed in the fifth section of the business plan.
Th Company’s website will feature a broad range of information regarding the types of specialized financial services that are rendered to its demographics. This website will undergo substantial search engine optimization in order to ensure that the Company can be quickly found when queries for factoring, invoice sales, AR sales, and/or structured settlement buyouts are conducted. The business will work with both a search engine optimization firm and a web development firm to achieve its online marketing goals. This is a long-term strategy that will be conducted throughout the life of the business.
In regards to social media, the Company will primarily use LinkedIn to showcase the financing solutions offered to businesses in the field of medicine, law, and transportation. The business will use targeted advertisements among people that list their profession as a doctor, dentist, lawyer, logistics firm manager, freight brokerage manager, or related position. The Company will use highly targeted advertisements that address the needs of all industries to which the business renders services.
5.3 Pricing
Depending on the type of invoice/receivable and the credit quality of the client, the Company will charge a fee equal to 10% to 15% of the underlying instrument. Additional fees may be applied in the event that a debt goes into collection.
6.0 Organizational Plan and Personnel Summary
6.1 Corporate Organization
6.2 Payroll
7.0 Financial Plan
7.1 Underlying Assumptions
The following assumptions are noted:
- Factoring Company, LLC will acquire $2,000,000 from private investors.
- The business will hold receivables for 30 to 120 days (at most).
- Invoices and accounts receivable will be acquired for 85% to 90% of their face value.
7.2 Sensitivity Analysis
The business’ revenues are only modestly sensitive to negative changes in the economy. This is due to the fact that all businesses (especially the ones listed in this document) have ongoing needs for cash to operate their enterprises. Factoring Company, LLC will generate substantial returns on investment from its portfolio while concurrently maintaining controllable operating costs. This will ensure the economic stability of the business.
7.3 Source of Funds
7.4 Profit and Loss Statement
7.5 Cash Flow Analysis
7.6 Balance Sheet
7.7 Breakeven Analysis
7.8 Business Ratios
