Factoring is the business of purchasing and collecting accounts receivables or of advancing cash on the basis of accounts receivables.  The most common reason a small business would need to use a factoring company is because they have a lack of capital due to their growing accounts receivables.  To put it simply, if the small business isn’t getting paid by their customers, they can’t pay their own debts.

Factoring is not generally a viable long term strategy for small businesses mainly because of the costs involved.  Factoring can be extremely expensive…commonly 10 to 12 percent of the amount of capital funded.  Small business sometimes raise their prices to offset the costs associated with factoring but this is usually only effective on a short-term basis.  That’s why factoring is not a long-term solution.

Anytime a business extends credit to a customer there is an element of risk.  Will the customer pay? Will the customer pay on time?  Some questions about a customers credibility can be answered early on, before the credit is extended. 

The first method for limiting risk is to pull a credit report and check references.  A credit report will show the customer’s total liabilities, whether the customer makes their payments on time, and other financial patterns of importance like increases in debt.  This information could aid in making a decision whether or not to offer this customer a line of credit.  References can also be a great tool to judge a customer’s credit worthiness.  Calling other suppliers or lenders that have already issued credit to your customer can be invaluable information.

Another method to limit risk is to not extend credit when a customer is paying slow.  Usually when someone pays slow it’s for a reason.  Most of the time their debts and monthly obligations out weigh their revenue.  This type of pattern can be cause for concern as it’s usually the beginning of a long downward spiral that will only get worse over time.

Getting collateral is another possible method to limit risk.  This is common in many industries as it motivates the customer to pay their debts and obligations in a timely manner.  Some examples of possible collateral could be a customer’s inventory, machinery, equipment, company vehicles, real property, stock, etc.

Most people in America have credit cards and the majority of them use their credit cards regularly and maintain balances.  Credit cards can be bad news for a undisciplined, spend happy person.  On the flip side, credit cards can be good news when it comes to most small businesses.  Good news in terms of receiving payments, not creating new debt.

As a small business owner, I prefer it when customers pay with a credit card.  Credit cards ensure that my business will get paid.  Sure I have to pay fees on every transaction and fees to my merchant services company but I know I’m getting paid from my customer for services rendered.  With credit card payments I don’t have to worry about bounced checks or employees skimming money from cash payments.  I love it when my customers use credit cards!

That being said, there is an element of risk involved when it comes to fraud.  Anytime an employee is unsupervised and has a customer’s credit card in their possession there’s an opportunity for fraud.  I’ve been fortunate in that I havent had any rogue employees commit any crimes on my watch but other small businesses havent been so lucky.

Authorities recently apprehended an employee at a “Famous Dave’s BBQ” in Pensacola, FL for credit card skimming.  The employee apparently stole credit and debit card numbers from 60 different customers.

Fraud has always existed in business and will continue to do so as long there’s opportunity for criminal minded persons to make money.  Fraud existed before computers, and now, with computers running nearly all facets of business there is even more opportunity for fraud to exist.

Large businesses are typically able to control fraud better than small businesses for a variety of reasons.  First of all, larger businesses can afford to implement the necessary safeguards to help mitigate risk.  Safeguards such as internal audits, expensive fraud insurance, security systems including cameras, the ability to segregate duties (i.e. purchasing agents shouldnt be in a position to approve invoices for payment), etc. 

Small business typically don’t have the funds necessary to implement any safeguards.  Accounts receivable departments have so many opportunities to commit fraud and without safeguards in place, the company will always be susceptible to fraud.  Small businesses can, however, minimize the likelihood of frauds through strengthening its internal controls. There are numerous methods to detect accounts receivable frauds so if a business finds itself a victim of a fraud, it should consult its legal counsel, accountant, and a competent fraud examiner.

In most cases large firms have a well-defined structure that usually dictates how the firms business flows internally.  These organizational structures typically have been in place for years and rarely change thus making change a challenging proposition.

Let’s consider the internal structure of large company’s sales division.  Let’s refer to this company as Company X.  Let’s assume a stellar salesperson, we’ll refer to this person as Bob, wants to change a process internally.  Let’s also assume this process has been in place forever.  Bob would have to discuss the change with his boss, the local sales manager.  The local sales manager would have to discuss the change with his boss, the branch manager or regional sales manager, or both.  The branch manager, regional sales manager, or both would then have to discuss the request for change with their boss, the national sales manager.  The national sales manager would then have to discuss the request for change with their boss, the VP of sales who would then, most likely, discuss the change with the President or CEO. 

The above example is purely hypothetical but very common when referring to large firms.  This example is also about the sales division.  Large firms have many divisions such as human resources, management, and accounting, just to name a few.  Each of these divisions within these large firms struggle to change largely because of their internal structures. 

Structure isn’t the only reason change is so difficult within large firms.  Accountability and job security also play a major role, at least in my experiences.  What I mean by accountability is: who is going to okay the proposed change?  Is it the local sales manager, the regional sales manager, the VP of sales?  Whoever decides to implement the change will have to be accountable for that change.  I’ve found that this is easier said than done.  The ultimate “job security” in the minds of corporate personnel is to never rock the boat… or make big changes

There are many pros and cons of doing business entirely online.  There are so many variables involved such as the type of business, does the business have inventory, is the businesses target market local or universal?  These are just some of the variables involved when looking at the possible opportunities an online business can offer.

An obvious “pro” of doing business completely online is the limited overhead costs.  Fixed costs such as rent, utilities, phone and internet, water, and trash are virtually eliminated.  This is, of course, assuming the business is run out your home.  Obviously you would still pay these bills but only for your home and not a storefront or office elsewhere.  Another very important pro is the tax benefits involved with working out your home.  Home bases businesses can offer huge tax benefits.  The IRS will allow for a portion of the rent or mortgage to be deductible,  as well as the utilities, internet and phone, and the water and trash bills.  These deductions can really make a difference when it comes to lowering your tax liability and keeping your money in your pockets.

Running a business entirely online without a physical storefront or presence may not be possible for some businesses.  Lets consider a business with inventory.  Nearly all retail businesses need a storefront with the exception of online businesses.  But where do these businesses keep their inventory?  Some businesses are able to sell their products on the internet and actually have the product drop shipped from the manufacturer’s warehouse thus eliminating the need for storage….all other businesses need to inventory their merchandise.  Depending on the size of your home, there may be no other choice but to rent commercial space.

Buying a Venture

Discuss the advantages and disadvantages of buying a business as opposed to starting one from scratch.  What two ways can one buy a business and which is preferable?

Buying an established business versus starting a business from scratch has both advantages and disadvantages. 

When you buy a pre-existing business you’ve basically eliminated the start-up costs such as site selection, build out, heavy marketing, etc as well as the time and effort associated with starting a new business.  An attractive pre-existing business should already be established to some extent.  Of course, if the business you are buying is well established and successful, you’ll most likely have to pay a premium for that business.  On the flip side, if the business is struggling you may be able to purchase it for pennies on the dollar and have a real opportunity to turn it around.

Starting a business from scratch offers many challenges.  First and foremost, the time and effort involved to get the business up and running can be extremely costly as well as physically and mentally exhausting.  You also have to consider the timeframe it takes to actually show a profit and earn a living.  Typically this can take 1-3 years.  This is something you’ll have to be prepared for financially and mentally. 

Typically when you buy a business you put a percentage down as a down payment and finance the remainder.  Frequently the seller of the business will offer financing with the business as collateral.  If the seller wont offer financing you’ll most likely have to get a small business loan from a bank or find private investors.  Frequently when the seller offers financing, they’ll stay and work with the new owner to “show them the ropes” thus decreasing the chances of failure. 

Is there such a concept as ‘good will” in reality and is it transferable?  Why or shy not?

“Good will” is a real concept that has an intangible but quantifiable prudent value of a business beyond its current assets.  Some examples of “good will” are the value of the businesses brand, the customer base, reputation, image, and other positive aspects of the business. 

“Good will” is transferable because it has a commercial value.  A common example of transferable “good will” is a businesses management team and customer base.  A few years ago I sold one of my small businesses and in the sales contract we had “all employees” and “customers” as transferable intangible assets.

Franchising is fascinating industry.  Franchising is all around us and most people don’t realize it and don’t really understand it.  Some examples of industries that are commonly franchised are: the fast food industry, the tax preparation industry, restaurant chains, small retail chains, and professional sports teams!  It’s unbelievable how many businesses fall under the franchise umbrella.

A franchisee is a person who purchases a business from the franchisor.  For example, you could buy a “Subway” store and you would be the franchisee.  Subway corporate would be the franchisor.  Typically the franchisee pays a “franchise fee” to the franchisor to buy the business.  The franchisee is also required to pay royalties and advertising to the franchisor every month.  These royalties vary from industry to industry as does the advertising budget.  In return, the franchisee gets a business with strong brand to market.  The franchisee also gets support from the corporate office thus decreasing the chances of failure.  Some people refer to franchising as buying a “business in a box” because the franchisor gives the franchisee everything they’ll need to be successful.  That’s why the failure rate for franchises is significantly lower than it is for independent businesses.

Some franchise chains not only have franchisees but also have company owned stores.  The company owned stores are run just like all the other stores except for they have a general manager that works for the company.  The manager is not self-employed.  Typically, if a franchisee fails, the franchisor will take over the store and run it themselves.  It’s very important in retail to keep these stores open so the general public doesn’t view the brand as a failure.  Frequently, the goal of the franchisor is to take over the store, turn it around, and sell it to a new franchisee.  In some cases, if the store is very successful and there’s a solid manager running it, the franchisor will continue to own and run the store.

From a personal standpoint, I would always prefer to be the franchisee versus a manager of a company owned store.  As a franchisee, you have no one to answer to, you’re considered to be self-employed, and there is no cap on how much you can earn.  That being said, the franchisee inherits all the financial risk which comes with the territory of being an entrepreneur. 

Being a manager of a company owned store is similar to being a manager of any other business that you don’t own.  The manager has to answer to his or her boss,  the manager is limited in the decision-making process, and the manager’s pay is typically competitive in the industry but limited.

I believe that I possess several personal characteristics that have helped me to be successful.   

One characteristic that has helped me over the years is my drive to achieve.  I’ve always had the attitude that if someone else can do it, why can’t I?  I still believe that today.  No matter what job I have, no matter what business I own, I believe I can achieve my goals and it’s completely up to me.

I’m also the type of person that’s not scared to go out on a limb and try something different.  I enjoy thinking outside of the box.  I’m never scared to try something different.  Every idea sounds ridiculous when it’s never been done before.  After it’s successful, everyone says “why didn’t I think of that.”  I’ve always considered myself a “risk taker” and I believe that type of attitude is necessary to be successful.

Have you ever heard the phrase “What’s the worst that could happen?”  I mutter this phrase on a regular basis.  I’m not worried about possible negative outcomes in business.  I do what I believe will work and what I believe is the right thing to do….always.  Some of the most successful entrepreneurs in the world have, at some point, put themselves in depressed situations.  Donald Trump went bankrupt with failed businesses and Robert Kiyosaki (Rich Dad, Poor Dad author) lived in his car with his wife for a year!  I surely don’t want to live in my car for a year but I’m not they type of person to allow “worst case scenarios” to alter my thought process in business.  I know as long as I’ve got my faith, my health, and my family and friends I’ll be just fine.

Life Experiences:

Everyone has unique personal characteristics that mold them into the people they are today.  Personal characteristics such as life experiences, parental influences, career displacement, and education all play roles in each one of our lives and can specifically impact our careers. 

As a small business owner, I’ve looked back on my personal life experiences and concluded that many of those experiences have had a direct effect on my career and more specifically the success of my small business.  When I was 21 years old I applied for a job with a manufacturer’s rep firm called J.N. Marshall, Inc.  J.N. Marshall was the biggest plumbing and heating manufacturer’s rep firm in the Rocky Mountain region.  At that time, I had no experience in the industry.  I had no sales experience, no warehouse experience, and zero product knowledge.  I told the owner, Greg Marshall, that I would be happy to start at the bottom and work my way up.  I told him he could pay me whatever he wanted and that my ultimate goal was to become a successful salesman.  Greg hired me, started me in the warehouse, and paid me minimum wage.  After 6 months of working in the warehouse, I was promoted to inside sales.  After one year of working in inside sales, I was promoted to outside sales.  My new customer base consisted of all the customers that the other outside sales people didn’t want.  I inherited accounts that didn’t pay their bills on time, accounts that had been called on but never bought from us, accounts that were mean…literally, mean people! 

I worked as hard as I could but struggled for the first 6 months I was in the field.  I received small orders here and there from various customers but never really made a name for myself.  I had one customer in particular that had huge potential but had never bought from J.N. Marshall.  This customer was notorious for being a cut throat business man and a real jerk.  Most reps around the region were scared and intimidated by him.  My competitors would contact his purchasing agents by phone so they wouldn’t have to deal with him directly.  He often threw sales reps out of his office and rarely had a good reason for doing so.  I knew there was a way to get his business and I knew I couldn’t give up.   I called on him every week, sometimes getting yelled at, sometimes getting completely ignored.  He basically treated me like I wasn’t even there.  I befriended his purchasing agents, his receptionist, and his sales team, none of which could make any decisions without his blessing.  

I knew I had to do something different….I had to get face to face with him.  I decided to show up at his office at 5am.  I had heard that he was usually the first one there.   He showed up at about 5:30am.  I waited until he was in his office and then I walked in.  As I entered his office, he looked up and then looked down at his computer.  He didn’t say a word…I was going to have to open up the conversation.  I said good morning and he responded with “what do you want?”  I explained to him that I respect his loyalty to his current vendors and that I would love to be his backup plan if they couldn’t deliver.  I told him about all the products we stocked in our warehouse and that we would be happy to warehouse any other items he needed.  My main objective was to let him know that I wanted to work with him.  I wanted him to give me something to do, give me an opportunity to follow through, to give me a project.  

He told me to talk to his purchasing agents and get a list of their most popular commercial hot water heating boilers they sold and give him a quote.  I got the list and faxed over a quote that afternoon.  I also faxed over our current stock so he could see that we had everything he needed in-house.  The next morning, I showed up at his office with donuts and coffee to say thanks and to see if he had any questions.  He didn’t have any questions but did thank me for the fast quote.

About a week later he called and had a rush order for one boiler.  Apparently his biggest customer was dealing with a defective boiler from their current vendor and their current vendor didn’t have another one in stock.  His driver came over with their flatbed and picked up the boiler.  I followed him to the job site to make sure everything went smoothly.  Everything went great and the installer said he actually preferred our boiler because it was easier to install. 

To make a long story short, if that’s possible, this customer became J.N. Marshall’s largest hot water heating boiler customer.  He ordered two truckloads (containers) of commercial boilers per month.  That’s approximately 100 boilers per month at an average cost of $3,000 each.  Over the years, he and I became friends and he ended up buying much more than just boilers from us.

This was definitely a “life experience” that has had a great impact on my overall business success.  This experience taught me to never give up and always go the extra mile.   I know those are cliché’s, but they couldn’t be more true.  I’ve often wanted to give up in frustration but I don’t because of this experience.  I truly believe there’s always a way to accomplish whatever it is you strive to accomplish.  I believe there’s always a way to make someone your customer, no matter what the circumstances.  I preach this to my employees because I know how true it is.

Parental Influences:

Parental influences can play a major role in the success of one’s small business.  More often than not you hear of an entrepreneur that says his or her parents were broke and worked their whole lives doing jobs they hated so it motivated them to be as successful as possible without anyones help.

Sometimes the opposite can also be true.  The parents are wealthy and the children never have to earn anything on their own so they’re not motivated or self-reliant. 

These of course are vague generalizations but are valid examples of how parental influences can play a role in one’s success. 

Parents can instill traits in their children that may have an impact in small business success.  Personality traits such as confidence, hard work, ethics, and optimism, to name a few, all could have a direct impact on one’s success.

Career Displacement:

I believe career displacement has a major impact on success in small business.  Working in varying positions for different companies over time can only educate and prepare you for your next opportunity.  Sometimes, losing your job can be the best thing that ever happened to you.  I know this from my own personal experience.

I was in the mortgage banking industry for several years leading up to the mortgage crisis in 2006-2007.  The company where I had worked for 3 years went bankrupt in 2006.  Luckily, I was able to find another job immediately so I wasn’t too concerned with the industry.  Just after working with my new company for 6 months, they too went bankrupt.  This was in 2007 and no banks were hiring or surviving the mortgage collapse.  I was distraught, not knowing what the future held for me.

After a few months off I came to the conclusion that it’s time I control my own destiny and become self-employed.  I was fortunate enough to have saved some money so I decided to buy a franchise.  I still own that franchise today and I’m growing slowly but surely.

Without career displacement I might not be self-employed today. 


Education can have an impact on success in small business.   Having a formal education can only help you succeed but I don’t believe it, alone, will allow you to succeed in small business unless you also possess social skills.  I believe that the combination of real life experiences coupled with a solid education will increase your chances of succeeding in small business.  There are some things you just can’t learn in a classroom. 

Often you hear people talking about street smarts vs. book smarts.  Is one better than the other?  I believe the most successful business people encompass both of these attributes.  That being said, street smarts may not be considered a ‘formal” education but is it not an education of some sort?  Knowing and understanding social skills and being able to deal with all kinds of social situations can make or break you in small business.  

Throughout my years in business and sales I’ve met several people who couldn’t write worth a damn but could sell anything to anybody.  They had superior social skills and because of those skills they were successful.  On the other hand, I’ve known several people who’ve had superior educations from the finest universities and they too were successful.  I’m not sure if these types of education can make you successful by themselves but I am very confident that if you combine a formal education with superior social skills you will eventually find small business success.