Category Archives: For Investors

Marketlend Academy: SMEs are the true north for the 2019 election

Each new year brings a chance to make changes for the better, but with a federal election just months away, this year is one of the more unpredictable.  One thing is certain: SMEs will play a key role in the development of the major parties’ business policy, and for the resulting direction of the economy.

 

With an early budget, the election will probably be held in May, and at this stage it’s not likely to be a tight race. A December Newspoll found 55 per cent believe Labor will win, while just 24 per cent back the government for re-election. But even strong polling guarantees nothing, so both parties will be desperate for support, and every coherent group of voters will be up for grabs. SMEs are high on the list, representing everything from Mum and Dad operations to industry leading firms.

 

That’s a mixed blessing. While both parties courting the sector should lead to progressive policies that benefit both business and the economy, the promise of wholesale change can increase uncertainty. A closer than expected election could also result in political uncertainty, which would cause additional anxiety for the economy as a whole. That could have a pronounced impact on SMEs, especially if the availability of capital is affected.

 

For SMEs to enjoy smooth sailing after the election, both major parties need to be clear on what their policies are, and why they believe in them. The parties must prove they’re serious about supporting Australian business, with the intent to follow through on their promises regardless of the political landscape post-election. A promise not kept does more harm than good.

 

More importantly, policies that support SMEs and the overall economy must be sold to the public. That’s the job of politicians and the business community.

 

SMEs are the lifeblood of the Australian economy, and what’s good for SMEs tends to be good for everyone, especially during a domestic housing downturn and an unpredictable global political climate.

 

By helping the Australian public understand the importance of strong SMEs, the political and policy incentives of politicians become aligned. With everyone paddling in the same direction, it’s much more likely we’ll find a path around those dangerous waters.

 

Marketlend Academy: How to fix cash flow

Managing cash flow can be a challenge for any business, especially an SME when a single supplier, buyer or loan can have a big impact.  Marketlend CEO Leo Tyndall looks at how an SME can fix its cash flow, particularly making intelligent use of trade credit facilities to extend payment terms. If you want to read the full transcript, see below.

 

 

Well, there’s a number of options they can fix their cash flow. Obviously, they can take on trade credit facilities similar to what we offer. And what they can do there is, they can actually, essentially get us to pay and then they can turn around and they can collect the money from their client 30, 60 days down the track and repay us.

The other way that they can improve their cash flow obviously, is with the growth of their business is to change the terms of their debtors on the other side, but that’s not ideal because they may lose business. So it’s more like looking for financial options which actually match their cash flows themselves.

Marketlend Academy: When should an SME not seek financing?

Marketlend CEO and Founder Leo Tyndall discusses the criteria an SME should look at before deciding not to seek financing. If you want to read the full transcript please see below.

 

 

So, they shouldn’t seek finance when the finance itself firstly doesn’t match their needs, so if it’s a principal and interest loan. And they shouldn’t seek finance when the finance itself is actually not designed to help grow their business, but actually is going to strip their cash flow so that they won’t be able to pay for other expenses. And this is a common uh problem that we see a lot. Someone may get $50,000 and then all of a sudden find that they’re paying $1,200 every week. And so, they’ve got the $50,000. That was great. Fills one void. But then all of a sudden their cash flow’s stripped and then they’re all of a sudden $1,250 short every month. And so when they’re looking at their finance, they should say, “Is this finance going – how’s it gonna affect my cashflow?” Because the financiers going to do the same thing. How’s it gonna fix my [cashout 00:23:22]? What is my ability to service the debt going to operate or what’s it going to be like when I turn around and take on these facilities?”

 

If you look at a home loan, typical debt service ratio is 30% of whatever you actually borrow, you should be able to pay it back from your income. Now, similar rules should apply with a SME and SMEs should think about it, is is this going to chop 50% of my cash flow or is this going to chop 12%? They need to look at their cash flow as a whole.

Marketlend Academy: What’s the problem with Fintechs in the SME space?

Marketlend CEO and Founder Leo Tyndall discusses how the problems with the FinTech industry as it applies to the SME space. If you want to read the full transcript, see below.

 

 

So, the issue with FinTechs in the SME space is the fact that the majority of investors and FinTechs have not identified how they can help the SME. They have identified that there is this open market with very little regulation where you can charge rights, which, in any other market, would be not acceptable. So, classic example, we’ve seen announcement by another FinTech saying you bu- uh-uh raise some money and it turns out that the rate that they tell the borrower is, uh, you know, in the teens, but then they have these additional charges, which, if you do the numbers, could possibly add up to 20 to 25%. If you go to the man on the street and say, “Would you like a personal loan?” And you want to pay 25%. He’ll say, “Go away.” But yet, SMEs all day long are turning around and committing to these types of returns. And why? Because it’s not crystal clear. And all that FinTech’s done is opened essentially a market to those FinTechs, or those venture capitalists, to be able to turn around and get a high yield.

 

You only have to look, for an SME, if thy want to understand where the problems are they just have to ask why are all these investors are jumping into the SME funding space. They’re doing it because the yields are so high for the investor. Now they’re doing it because they’re sitting there, with FinTechs, saying, “Hey look, I can get access to this market. This guy’s gonna tap the buttons, within six hours you’ll get the facility, and then he’s gonna pay us 20, 25%. And, by the way, what you may not know is if he pays out within three months, you’re not gonna get 25. You’re even possibly gonna get a higher rate of return because we’re gonna charge him for the full six months.” And this is where the problem in FinTechs is, is that they’re not looking at a longevity of the market. They’re looking at a short term play for them and then possibly IPO or something similarly, and they’ll be gone before everyone realizes that this isn’t a sustainable model.

 

When to grow your business with help of investors or stay the course

One of the most critical decisions you will make in your business is when and how to expand it and take it to the next level. Today, it is easier than ever to find the capital for expansion. You don’t have to go to a bank and beg for a traditional loan. Financial technology (FinTech solutions) abound.

 

If your business involves a physical retail space, the expense involved with expansion is obvious. You have to purchase or lease additional space. You have to hire more people. And you may have to get additional licenses for regulatory compliance.

 

You will also require additional inventory, staff, and support infrastructure. You don’t want to go it alone with a decision like this. The input of your investors and consultants is critical. They will likely be aware of funding solutions of which you may not be aware. There is another reason why investors are beneficial at this stage.

 

Cash Flow

 

One of the biggest motivators for growth is also one of the biggest mistakes if you fall for it. The problem is cash flow. There are any number of reasons good businesses fall behind in cash flow. On paper, your business might be doing perfectly well. But in reality, you are always waiting for the next receivables to come in.

 

The thing you should know is that cash flow problems are not settled by expanding. They are exacerbated by expanding. Like credit problems, you don’t solve them by going even deeper into debt. Be sure to solve the cash flow problems before moving on to the next phase of growth.

 

Solidify Your Base

 

Like a politician, before going for a promotion, you have to solidify your base. First, a strong base acts as a reliable safety net. If you have a solid business with a strong cash flow and a reliable income, you have a solid platform from which to ascend.

 

Expansion introduces instability just by the nature of change. All change is unpredictable. We can try to steer and manage it. But we cannot entirely control it. If your base is not secure at the time of your expansion, your entire operation is at risk.

 

A stable base affords you the luxury of trying new things without risking too much in the process. You always want to avoid moves that bet your entire business on one thing. Making certain your business is firmly established first means you never reach that moment of crisis where everything is at risk due to a single failure.

 

Too Much Growth

 

There really can be too much of a good thing. Growth can be a good thing when it is the right amount and pace. But grow too much before you are ready, and blessing quickly transforms into curse.

 

If you can handle 10% growth, don’t buy into a marketing campaign designed to give you 30% growth. You will not be able to serve the additional 20%. Either your additional customers will quickly leave you and give you a poor rating which would stifle your growth in the future, or you will try to serve everyone and decrease your overall quality of service. Either outcome is the kiss of death.

 

It is very possible to outgrow your own capabilities. You might be a very capable manager of a small, neighborhood business. But you might simply be the wrong person to take on s statewide, or even citywide affair.

 

It also may be the case that some businesses simply don’t scale. If only you and a handful of partners have a particular skill, there are only so many widgets you can hand make, or services you can personally do. In such cases, growth is not the answer. You might want to look into serving more of a premium market. So before expanding, you have to be sure you are not growing beyond your ability to serve your market.

 

When the Market Is Ready

 

Even if all other factors show green, you will still need to wait until the market is ready. You may be ready. Your finances may be ready. But if the market isn’t ready for more of what you are producing, you have to put resources into a market education campaign and be patient.

 

Sure, your neighborhood can’t get enough of your hot cross buns. But your neighborhood may also be filled with people from the old country where your special recipe stirs memories of a care-free childhood. There simply may not be any other place in the city that is as enamored by your recipe. That does not mean you can’t expand. It just means the groundwork has to be properly laid.

 

Expansion can be a tricky affair regardless of whether your business is in the retail space or cyberspace. The same concerns apply to a services business that is entirely online. You still need the advice and capitalization of investors, stable cash flow, a solid base, just the right amount of growth, and all when the market is ready.

 

Marketlend Academy: Why not give an SME more money than it needs?

Listen to CEO and founder of Marketlend, Leo Tyndall, discuss the balance needed in borrowing and investing to ensure both parties are satisfied. If you want to read the full transcript, please see below.

 

 

Well, ’cause they’re gonna have to pay a rate for money sitting in a bank. They’re going to pay the unutilized fee, which is typically 7% per annum, and they’ll be paying that fee whilst the money is not being used. And the reason they’re paying that fee is the investor has actually given the full commitment to the money, and he’s actually placed the money in the bank account saying, “You can use it whenever you want.”

 

However, you need to get valid invoices, obviously. And in this case, if we turn around and we have too large a limit, they just won’t utilize the facility and it’ll become a cost for them. So what we do is, we look at the fact that we don’t want a situation where the investor’s not getting the return that they expect because they’ll be saying, “Well I don’t want money sitting in the bank and earning 7%,” although these days 7% in the bank is quite a good return.

 

But at the same time, you don’t want the borrower saying, “Why am I paying 7% for something where that money, sure it’s a commitment but I’d rather only pay it when I use the money?” So we try to run a bit of a balance there and ensure that both parties are successfully happy in the arrangement.

 

Marketlend Academy: How to balance the rigor of collections with caring for SMEs?

Listen to CEO and founder of Marketlend, Leo Tyndall, discuss how to balance the rigorous collection process with caring for SMEs. If you want to read the full transcript, please see below.

 

 

The way that we balance our collection process with the SMEs, is what I mentioned before that we contact them in the first day and second day. What happens is that representative calls them. And when he calls them he talks to them, and then he actually puts them in touch with our relationship manager. So we have a single relationship manager that is responsible for the area of post-settlement, and his job is to then communicate with that client and identify what’s going on. And if it’s a simple thing, and we’ve had them before where they’ve had one debtor who’s not paying on time or something similar, then he will work with them on how can we assist.

 

In some examples, what we’ve done is, we’ve then flown our financial controller, who is a chartered accountant, to go and sit with them and work out what’s going on with their cash flow. Maybe rejig some certain things in their cashflow, and suggest various options.We’ll also look at possibly getting limits against some of their debtors that they haven’t sold us the invoices to, to see if we can improve that position. We’ll also suggest to them to look at other options of possibly pulling on an equity investor, or something similar.

 

So it’s not as harsh as we turn them off. It’s very much a case of working with them. When I say time is the enemy, time is the enemy if we don’t work with them and we just turn off. And this is something we’ve always had SMEs communicate with us when you can’t pay. The worst event we can have is where they turn off all their phones and it all just becomes too hard and they went, “Uh-uh-uh, I just can’t handle it.”

 

Marketlend Academy: growing your business – the golden niche

Overreach is one of the biggest mistakes made by entrepreneurs. Despite the mountains of evidence supporting the concept of niche marketing, startups have a hard time fighting the urge to try and be all things to all people.

 

The impulse to abandon the niche strategy and go for the bigger prize is understandable. After all, if having a hundred customers is good, a thousand must be better. In this case, intuition is a poor business partner. To suddenly dump 10X the customers on a small business would be catastrophic in most cases.

 

It might surprise you to learn that the vast majority of small business owners have no desire to grow their business. This was one of the findings from a study by Erik Hurst and Benjamin Pugsley of the University of Chicago. Meteoric growth is not the brass ring for which every small business owner is reaching.

 

It is more important to be a right-sized business than a growing business. That is true whether you are a software developer or a hairdresser. One of the key reasons startups end up overreaching is they have never considered what the right-sized business looks like for them. Here are a few others:

 

Be Realistic

 

Many Entrepreneurs dream of becoming the next Steve Jobs. And that’s a real problem because Steve made it look easy. Companies the size of Apple, Microsoft, Google, Amazon, and Facebook seem to defy the rule of finding and sticking to a niche.

 

However, the appearance of universal appeal is an optical illusion. Each of those companies owes their success to mastering their niche. Apple does not make products for everyone. They have a narrow appeal that happens to run very deep. They are interested in the top of the market, not the fat middle. Microsoft makes their money from enterprise services. Google is an advertising company.

 

Each of these companies know who they are. When they go off track, it is almost always due to forgetting their niche and reaching for someone else’s piece of the pie. Even the big companies are very focused. So don’t fall for the illusion that they defy the niche strategy. They don’t defy the niche. They define it. Any appearance to the contrary is an optical illusion.

 

Establish a Base

 

Even if you are planning a meteoric rise, it is important that you establish a solid base. Your base consists of two parts:

 

1. Your first minimum number of steady customers that keep you in business. If you fail to gain other customers in other markets, your base will sustain you.
2. Your first business identity, product, and service that gained you your steady customer base in the first place.

 

A well-established base is a safe place to which you can always return if that becomes necessary. It is your fallback position, and the place from which you can build again. If you do not establish that solid base before reaching higher, you have no safe place to return.

 

Your base is your first and most important niche. Make sure it is always super-served.

 

Be an Expert

 

The way to become an expert is to narrow your niche. Don’t just make candles. Make artisanal, organic candles sourced from local materials designed for religious ceremonies. Now that’s a niche. Not everyone is going to want one of those. But everyone who does will want it from you.

 

Once you establish your area of expertise, you can slowly branch out. But you might not want to branch out if you find that your niche is satisfying. You might actually make more as an expert in a small niche than you would as a generalist in a large one.

 

Super-serve, Not Super-size

 

Success is in super-serving a loyal base, not supersizing your business to an unmanageable level. There are challenges large businesses face with which small businesses needn’t bother. Those challenges come in the form of investors, regulations, employees, and infrastructure.

 

None of these are bad in and of themselves. But they are challenges that can apply downward pressure to cashflow, life-balance, and focus. Remember Steve Jobs grew Apple to the point where he was no longer welcome in his own company.

 

You can never reach your brass ring without entering through the golden niche. Every successful company is well-defined, with an established base to count on when times are tough, expertise in an area that makes them unique, and a super-served core that has helped them become super-sized.

 

 

Marketlend Academy: How unfair credit conditions inspired Marketlend

Listen to CEO and founder of Marketlend, Leo Tyndall, explain why he created Marketlend. If you want to read the full transcript, please see below.

 

 

The reason why I created Marketlend is I saw a gap in the market. What I saw was that at the smaller end of town, the SMEs were finding it difficult to actually obtain extended credit terms. Whereas the bigger end of town was getting those. So what I mean by that was that what we found was that SMEs were actually turning around and having to pay, say, seven days or 30 days net of an invoice. Whereas the bigger end of town was paying 90 days extended credit.

 

So what we did was, we set up a business which was essentially able to give those smaller end of town clients, and these are SMEs between typically turning over 250,000 and up to 5 to 10 million, the same advantages as the bigger end of town. So that was to essentially enable them that they could buy goods on credit, have 90 days to sell those goods, and within that time then they would have the funds to repay back the 90-day credit or in the case of a debtor finance arrangement where they were able to turn around and fund their working expenses and working capital, and they were able to do that within the cycle that they would have in whilst they’re waiting to be paid by a large debtor.

 

Marketlend Academy: The Biggest Mistake An SME Can Make

Listen to CEO and founder of Marketlend, Leo Tyndall, discuss the biggest mistake an SME can make when it comes to its financial health, and why time management and decision making are critical. If you want to read the full transcript please see below.

 

 

I think it’s difficult to say it’s a mistake. I think it’s, it’s unfortunate to say a mistake. I think what’s happened is that SMEs don’t have a lot of time to actually make decisions. And the biggest problem they have is that the options for them to pick the right financier are just not in their face, so the mistake they do is not enough due diligence.

 

Now, is it a mistake or is it just a difficulty? I think it’s more like a difficulty they have in their space that the first thing most SMEs think when you’ve asked them about finance is “The bank.” And then they’ll go to their bank and they could waste a lot of time where they could find they don’t have probably collateral and can’t even get a loan, or you have this thing that they go on the web and they see an SME lender, and they click a few buttons. Go, “Whammo, I’ve got my money.” But they don’t look at the implications and how that affects their business as a whole.

 

So the biggest problem that I think we have in Australia, which is a very unusual problem in Australia, is that we don’t have a very deep equity market for small SMEs and we don’t have a very deep debt market for SMEs. So, as a result of that, they don’t have the option say like in the US or something similar where they can actually bring on venture capitalists, or they can bring on other funders to help them with the funding. They have to essentially just take what’s right in front of their face, and the problem being what’s in their face is whoever makes the biggest noise. It’s the SME lender that’s charging 40%. He’s the one who’s going to get the biggest, you know, hits because he’s the one that’s in everyone’s face. They’re not doing enough due diligence.