A small outdoor/indoor advertising company had established itself in a major Australian city. It was trading “okay” but was not breaking any records because it didn’t have sufficient volume. It didn’t have “critical mass”.
The cost of the fixed overheads of the business were only just being covered but the infrastructure was sufficient to support a business two or even three times the size of the current operation.
An opportunity arose where their most significant competitor wanted to sell, but the owner of the first business did not have sufficient capital to purchase their competitor’s business.
As the owner of the company had no real estate their bank would not offer them any funding to assist with the acquisition.
It looked like they would miss a golden opportunity.
An Accountant referred them to Nova Business Finance to see if Nova’s Cash Flow Finance Solution could facilitate the acquisition.
Nova Business Finance does not require real estate security, and instead utilizes unpaid sales invoices to provide funding and working capital to their clients.
This client had a substantial amount of unpaid sales invoices all of which were current and the majority of which were with solid national companies.
Within 48 hours of receiving the application, Nova was able to offer their new client a facility that allowed them to turn the bulk of the $200,000 sitting on their debtors ledger (that is unpaid sales invoices) into a sufficient amount of cash to fund the acquisition of the new company.
The client was able to complete the acquisition of their former competitor and merge all the operations into one business. As the client correctly assessed, they had sufficient infrastructure in their existing business to be able to operate both businesses. The marginal cost of the additional customers that were acquired through the new business was insignificant.
The client traded very well and within less than 12 months was able to repay the factoring facility in full and continue without the need for ongoing debtor finance.
This is another way that invoice finance or factoring can be used for business expansion. Not only is organic growth with factoring or debtor finance a very useful tool, but also converting the existing “asset” (being the unpaid sales invoices) into additional capital can allow a business to expand through acquisition of a competitor.