The Boston Beer Company is #13 on the Forbes List of America’s Best Small Companies, which is amazing when you consider that the company started out as a small home business. Today, it employs almost a thousand employees and its sales for 2013 was at $637 million. Now the company is worth more than $3 billion.
Its owner, Jim Koch is now a mentor and he readily gives out advice on how to succeed. And among the tips he gives out, the first one is about how crucial it is to have ready access to capital. If you are running a beverage company, you really need lots of financing in order to grow. But banks are notoriously tightfisted when it comes to lending to small business, which is why beverage company factoring has become more popular.
There are several ways to use beverage company factoring, as discussed below.
If you own a beverage company, most of your working capital will either be tied down in your invoices or in your inventory. And sometimes this can be a problem, especially when you realize that your expenditures are increasing while your distributors delay giving you the payment for the goods you provide. And some of your expenses must be dealt with immediately. These will include your overhead and salaries for employees.
Some people in the brewing business resort to obtaining venture capital, but this can be a mistake. This is especially true when you know you are posed for success.
One famous example is when a particular brewing company considered raising a million dollars by selling a fourth of their business. They changed their mind and resorted to factoring instead. They got the million dollars they needed, but they had to pay a quarter of a million as the cost of factoring.
That may seem steep, but that brewing company grew and achieved $5 million in annual revenue. Today this company is worth a $20 million. If they had gone with their first option by accepting venture capital, they would have sold a $5 million piece of the pie for just 1 million dollars. So by going with factoring, the brewing company essentially gained a net of $3.75 million.
This is the other main reason why factoring can be crucial. If your brewing company puts out a product that is successful among consumers, then there will be a greater demand for your brew. But that means you have to have the facilities in order to meet that demand. Without it, your company may fizzle out.
With factoring, you may be able to finance the construction of new facilities or improve your current machines.
Remember, factoring is not a loan. You are essentially paying for the privilege of getting your own money in advance.
Time is of the essence in the brewing industry, and you always have to be ahead of the competition. With factoring, you no longer have to wait 90 days to use the money owed to you. You can use that money now.