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The bank oriented roaster environment.

Long liquidation terms for accounts receivables may be putting a strain on your financial resources. Factoring your receivables may be a way to eliminate this pressure. A factor lends you money against your customer's debt to you. The decision is based on your customers' ability to pay, not yours. Factors advance a percentage of an invoice with completion of an order. The remainder is forwarded to you, less fees and an agreed financing percentage on payment by your customer.

Factoring is a high cost way to finance, but it is easy, being paid out of the "frozen" asset in your cash flow--your receivables. Factors want a business to enter a long term agreement for their services. Many factors have minimum volume requirements. Some commercial banks have factoring departments. There are also many independent factoring concerns. Because this financing industry has its share of runyonesque characters, check references before choosing a factor. For additional information about factoring, contact the Commercial Finance Association in New York.

Foreign companies in the coffee trades may have an interest in making an investment in your company. It is interesting to note that foreign individuals can now obtain permanent resident visas in the U.S. under the Alien Entrepreneurial Program administered by the U.S. Immigration and Naturalization Service. The individual investor must invest a minimum of $1,000,000.00 ($500.000.00 in rural and economically depressed areas) and the individual must be more than a passive investor to qualify for a "Green Card". The tactical benefit to making an investment in an American business may far outweigh the price extracted for that participation to an eager foreign business or individual. Trade Commissioners of foreign governments and Law practices specializing in naturalization work may be of help in beginning the search for a proper foreign investor.

Selling marketing rights in an undeveloped territory to a potential distributor with the ability to service the area can be a source of revenue, particularly if your products are developing a good name beyond your primary selling region. If this idea appeals to you, talk to your legal advisors about how to set up such a program. There are several strategic decisions to be made before you go looking for buyers of these untapped territories.

Licensing your name,logotype, trade styles, marks and other marketable passive assets for use on allied products, services or businesses can be a lucrative source of funds. This might take the form of franchising fees, or a percentage of gross sales or of gross or net profits. There are many opportunities in this area worth discussing with your financial and business planning advisors.

Barter may be an avenue that you may want to consider as a source for increasing your buying power. There are some interesting tax pitfalls here though, so talk to your tax advisor before plunging headlong into a heavy barter transaction. You might also talk to the National Association of Trade Exchanges or one of the other trade groups representing businesses in this field.

Exports may be financed through an SBA loan guarantee program. In addition, the Export-Import Bank in Washington, DC may also be of help. The path to both these programs is, unfortunately, littered with paperwork. Still, it is worth checking them out, at least.

Doing business overseas can be treacherous, particularly in Eastern Europe where many new opportunities for coffee are opening. Often deals die on the buyer's inability to provide an irrevocable Letter of Credit in a U.S. clearinghouse bank. An alternative may be to talk to the Foreign Credit Insurance Association. The Association can provide insurance for the receivables. The cost is usually between .5% and 1% of invoice. The rate is determined by the risk of loss which fluctuates depending on the country into which the goods are being shipped.

Get your customers to pay on shorter terms. Everybody knows credit is tight. In exchange for discounts, positive cash flow will be generated by customers who can afford to pay quicker and are desirous of obtaining the offered discount benefit. The discount should be calculated to generate more for the customer than if they left their money in the bank, while costing you less than financing a loan for a like amount of cash generated.

Many believe the ultimate financing plan is taking the company to the public in a stock offering plan. This is a sophisticated tool that usually marks the end of a small business' journey. The infusion of capital at this juncture often catapults the small entrepreneurial business into a whole new financial league. A discussion of the merits of "going public" will best be served here when more of the trade matures to that size and financial level of sophistication.

The financial sources you choose may prove to be a source for needed funds. Again, please be cautioned to avoid the error of thinking that your bankers are your friends. This idea, while romantic, is archaic.

The danger and the vice of borrowing resides in the potential of losing control of your business if things go sour. So, when the urge to "Go international, and then to go national" strikes, think four times about the risk of being forced to cede management to others some day. Remember, the lender's agents who take over your baby won't know coffee from Cocoa Crispies. Protecting their employer's financial interests is all they will be caring about; not your sense of commitment to your products, your staff, your customers or your community.

Raising money to help your enterprise sustain its growth curve can be good business. Before leveraging the love of your life, remember all the virtues that made you choose specialty coffee as a livelihood. The odds are that being a financial big shot wasn't one of them. Great coffee produced by small, independent roasters is the watchword of the specialty coffee faith. Keep the faith, baby. Don't give up your sense of self for the fleeting glory of being one of the "Big Boys". It may not be worth the price you pay. Your banker's 23 year old second assistant bookkeeper may like being called "Sir". If events like this make you squirm, as they do me, be content with your portion. You may be more comfortable being the best managed small coffee business in the land instead of the grandest. Make great coffee, and be beholden to no one.

As the title of this piece implies getting big can be a B.O.R.E. Be strong, be intelligent rather than smart; stay manageable. Utilize outside financing judiciously. In the long run you'll be glad you did, and your peers will admire your restraint.


The Commercial Finance Association, 225 West 34th Street, New York, NY 10122 Tel: (212)594-3490.

National Association of Trade Exchanges, 10556 Riverside Drive Toluca Lake, CA 91602 Tel: (800)733-6283.

The Export-Import Bank, 811 Vermont Avenue NW, Washington DC 20571 Tel: (202)566-8990.

Foreign Credit Insurance Association, 40 Rector Street, New York, NY 10006. Tel: (212)306-5000.
COPYRIGHT 1992 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:part 2
Author:Schoenholt, Donald N.
Publication:Tea & Coffee Trade Journal
Date:Dec 1, 1992
Previous Article:Van Eeghan celebrates 200 years.
Next Article:Gourmet coffee industry - year end wrap-up.

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