Liquid Capital : Figuring Out Factoring
Franchisor Sees Worldwide Growth Potential in Time-Honored Business Financing Practice
March 14, 2008 // Franchising.com // (Toronto, ON)---Brian Birnbaum, one of three founders of Liquid Capital, doesn't mince words when he talks about his company's long-term goal.
"Our plan is to make this a worldwide concept," he says matter-of-factly.
Birnbaum and longtime business associates Sol Roter and Barnett Gordon created Liquid Capital in Toronto in May 1999 to be a professionally operated franchise system whose core business of its franchisees or "principals" would be factoring.
If you have never heard of factoring, you're not alone. If Liquid Capital representatives meet with 200 people at a typical franchise expo, Birnbaum says about five might be familiar with the practice.
In reality, factoring is a time-honored, business financing solution that dates back to the Roman Empire. Factoring or Accounts Receivable Financing is a simple, but highly effective and viable alternative to traditional lending, especially for start-ups and high-growth businesses.
In a nutshell, Liquid Capital purchases the credit-worthy invoices from its clients and collects the money owed by its clients' customers. In this process, once goods and services are delivered, Liquid Capital advances clients 75 to 85 percent of the invoice upfront in as little as three to five days for new accounts and same day for existing clients. Upon collection, Liquid Capital pays the remainder of the invoice amount, minus its fee.
For businesses selling products or services and offering terms of 30 days or even longer, factoring eases their capital crunch and provides immediate financing instead of having money tied up in Accounts Receivable. Liquid Capital's primary clients - small- and medium-size companies - gain working capital to launch new product lines, support market expansion and survive seasonal ups and downs or other needs.
"We actually sat down one day and said, 'What does this world need?' We decided that what it needed was a franchised factoring company," Birnbaum said of the founding of Liquid Capital with his partners, who have been active in finance, factoring and business controllership since the 1970s.
Today, Liquid Capital has a network of 35 franchise owners or "principals" in 20 states in the U.S., along with 25 principals throughout Canada. The first U.S. franchise was launched in Miami in 2005 through subsidiary, Liquid Capital of America Corp., based in Irving, Texas.
Eight franchises were added to the Liquid Capital network in 2007, but 2008 holds the promise of a banner year. Birnbaum is targeting 50 new franchises for the United States and 10 in Canada, which would double the number of existing franchises in just one year.
Liquid Capital has divided the United States into 300 qualified territories. While factoring represented a $100 billion-plus industry in the United States in 2006 according to Factors Chain International - and it continues to grow at a 15 percent annual rate - the industry remains highly fragmented with up to 1,000 players. A recent market study found that no U.S. factoring provider scored more than two percent unprompted brand awareness.
With a focus on personalized service delivered by locally owned offices and backed by an extensive corporate infrastructure, resources and expertise, Liquid Capital is positioning itself to become a national and global brand.
"We believe that Liquid Capital will become the 'only' recognized brand for small- and medium-business financing," Birnbaum said. "When we attain our goal of having 300 U.S. franchises, we will have a $2 million annual marketing budget, by far the largest in the industry."
And because factoring is recognized worldwide as a trusted method of financing short-term cash flow and has become a $1 trillion industry, Liquid Capital is eyeing international expansion to Latin America, India, Australia and England as early as 2008 through master franchisees.
Liquid Capital offers prospective franchise owners a unique combination of benefits as a business-to-business opportunity in corporate financial services. Eighty percent of principals operate from home and enjoy an ideal work/life balance while also being able to access state-of-the-art technology and back-office administrative support that utilizes the resources of a billion-dollar factoring corporation, powerful marketing systems and comprehensive and ongoing training and skills development programs.
Unlike many franchise concepts, there is no need for retail or commercial space, there are none of the traditional staffing headaches, no required inventory and no need for special equipment or supplies. The estimated initial investment ranges from $54,850 to $87,600, not including a capital requirement of at least $150,000 to fund client advances.
Principals come from a wide variety of backgrounds and include executives and retirees seeking new careers, mothers with young children looking for a return to the professional workplace along with husband-wife and parent-child partnerships. Some examples:
- Judy Perdomo of Calgary, Alberta was a fledgling professional accountant who tired of the high-pressure corporate environment and wanted a home-based business that balanced work and family and offered the earnings potential to match her lifestyle.
- Josh Rabjohns of Lake Forest, Ill., had worked on Wall Street and had the necessary skills and strengths for business. He enjoys being a decision-maker and being able to operate in the B2B sector without the constraints of many traditional franchises.
- Lee Doernberg of Alpharetta, Ga., spent 25 years in Corporate America. Already an accounts receivable specialist, he found that Liquid Capital suited his skills perfectly while offering the potential for high returns.
Liquid Capital's franchise owners are a select group. Along with keen business acumen, marketing and networking skills are the strengths of successful principals since referrals from accountants, lawyers, bankers and consultants typically account for about 75 to 80 percent of their business.
"Not only are our principals decision-makers, but because of the capital needed to become a franchise owner, they are typically over 40 and bring with them 20 years of professional business experience," said Liquid Capital Vice President Peter Cook. "If you look at the profiles of our principals, they are a pretty amazing group of people. It's unbelievable to think that someone who was an executive at a large corporation or bank might all of sudden be sitting in someone's home, helping a small-business owner who might have $10,000 in monthly sales."
The Liquid Capital concept is suitable for both major and secondary markets. A territory is comprised of 17,000 businesses. While five principals might support a major metropolitan market such as Chicago, a state such as Iowa might have that same number supporting the entire state.
"But their business can be equally good, because in areas where there are fewer factoring companies, the opportunity is greater," Cook said. "We also have some principals who have multiple territories. As the business grows, the returns support increasing staff levels so they can still manage their work/life balance."
For both career professionals and entrepreneurs, Liquid Capital offers not only a strong potential return on their investment, but a new way to do business in an entrepreneurial environment that offers long-term security and business independence and rewards integrity, professionalism and personal growth.
"A mature Liquid Capital franchise may only have about 15 clients," Cook said. "For those individuals coming out of other professions where they might be operating in terms of hundreds or thousands, they now suddenly find themselves with 15 clients who they will know very well and take care of. Liquid Capital is a very manageable and achievable business. People don't have to overextend themselves to be successful."