David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.
To connect with David, email david@betteraccountingsolutions.com.
Articles by David Roitblat
How The PPP Reporting Oversight Harms MCA Companies
July 18, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
deBanked’s recent story covering the news about how the Small Business Administration (SBA) failed to report many Paycheck Protection Program (PPP) loan charge-offs to credit agencies is a major concern for merchant cash advance companies.
As the deBanked article explained, a new report from the Office of the Inspector General (OIG) found that the SBA did not report 37% of PPP loan charge-offs, and missed deadlines 97% of the time. The OIG report stated that the SBA’s automated system was supposed to report these loans, but it did not always work correctly. As a result, many delinquent borrowers could still get new loans because their bad debt wasn’t reported. The report also pointed out that a large portion of early PPP loan charge-offs were linked to potential fraud, which makes the lack of reporting even more serious.
This oversight could cause real problems for our industry. As an accountant working with MCA companies for over a decade, I understand firsthand how important accurate credit reporting is for making sound and fully informed decisions on which merchants our clients choose to invest in and help advance.
For MCA companies, this incomplete reporting leaves a critical gap in the information that funders rely on. Without accurate credit information, it’s harder to assess the risk of advancing capital to any particular merchant, which can lead to higher chances of defaults and financial losses when you don’t have a complete history that includes any times they’d skipped payments or defaulted. The missing data from the SBA means MCA companies might unknowingly fund high-risk businesses, which ultimately harms the cash advance company itself.
To work through this situation, funders need to take stock of how they evaluate prospective merchants to work with.
First, it’s important to do thorough background checks using multiple sources of information. Relying on just one credit report isn’t enough, especially now that we know there might be gaps. Cross-referencing data from various sources will provide a more complete picture of a merchant’s credit history.
We can also require merchants to provide more documentation and financial information before approving funding deals, removing a complete reliance on credit reporting agencies that have now proven themselves fallible. Pairing up the complete history that they provide along with their credit reports, and continuous tracking of the deal on a strong internal MCA CRM that lets you know of any hiccups, is a proactive approach that helps in making informed funding decisions.
It’s vital to develop strong risk management strategies. This might include setting stricter funding criteria, diversifying the types of businesses we lend to, and keeping enough reserves to cover potential losses. By being cautious and prepared, we can protect our companies from the financial risks posed by incomplete credit reporting, and eliminate our over reliance on that one source of information.
Let’s use this opportunity to ensure we are making the best funding decisions possible, and continue to have healthy companies built on stable foundations.
Why It’s Important To Understand How You Report Syndication Income
June 25, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
In the world of Merchant Cash Advances (MCAs) where financial reporting is complicated and extremely detailed, understanding how to handle syndication income is crucial. Syndication income, which often includes management fees, plays a pivotal role in the operations of many MCA companies, helping fund deals and enable the business to grow to the next level, while also often (hopefully) proving a lucrative investment for the syndicator.
It’s essential to grasp the various approaches to recognizing this cash injection and the implications it has on financial reporting. Let’s explore the strategies that MCA companies typically apply and the accounting principles that guide them.
Companies have diverse methods for charging syndicators, each with its own set of nuances. Some MCA companies opt for a straightforward flat fee upfront. Others choose to charge a flat fee as funds are repaid with each payment, and there are those who employ a combination of both – a smaller upfront fee coupled with fees assessed as funds are recovered. Understanding which method you typically use is the first step in accurately recognizing syndication income.
Most MCA companies operate on an accrual basis, where income is recognized when earned, regardless of when funds are received. This approach is predicated on the notion that once a syndication fee is charged, it need not be refunded even if the MCA deal defaults. Consequently, income is recognized at the moment fees are charged.
For instance, if an MCA company charges an upfront syndication fee, that fee is immediately recognized as income. The same principle applies when fees are assessed as funds are repaid – income is recognized in real-time as payments are received. However, it’s important to note that there are exceptions to this rule. In some cases, MCA agreements dictate that if only a portion of the funds is recovered, a corresponding portion of the syndication fee must be refunded. In such instances, income is not recognized until funds are actually recovered, and the syndication fee income is allocated over the duration of the advance.
So, why does this matter, and how does it impact the financial landscape of MCA companies?
First and foremost, it has a direct bearing on financial reporting. Accurate accounting practices are essential not only for internal financial management but also for external stakeholders, including investors, regulators, and auditors. Understanding when and how to recognize syndication income ensures that financial reports reflect the true financial health of the MCA company, both for yourself and the syndicators.
Moreover, the chosen approach to recognizing syndication income affects cash flow. An upfront recognition of income may paint a more favorable cash flow picture, while a deferred recognition approach may better align cash flows with actual funds received from MCA deals. This can impact budgeting, planning, and investment decisions.
Furthermore, it influences the perception of risk and profitability. MCA companies that recognize income upfront may appear more profitable on paper, while those that defer income recognition may appear less so. This can impact investor confidence and the overall attractiveness of the MCA company as an investment opportunity.
Understanding the various approaches and their implications is essential for accurate financial reporting, effective cash flow management, and informed decision-making. Whether income is recognized upfront, as funds are repaid, or deferred until funds are actually recovered depends on the specific terms of MCA agreements and the associated risk and profitability considerations.
Ultimately, the goal for MCA companies is to employ accounting practices that not only comply with industry standards but also provide a transparent and accurate representation of their financial standing. By mastering the art of recognizing syndication income, MCA companies can navigate the intricate financial landscape with confidence and clarity.
MCA Businesses Must Protect Themselves Better
May 28, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
A couple of weeks ago, deBanked covered the story of Mark Csantaveri, a key figure behind three fraudulent companies that defrauded over 50 distressed small business owners with outstanding cash advances–and their cash advance funders–of over $3.4 million.
Together with his co-conspirators at MCA Cure LLC, LDMS Group LLC, and Evergreen Settlement Group LLC, Csantaveri allegedly set up these fake debt settlement companies to prey on people with cash advance deals in place. Promising a fantastic debt restructuring system that could lower their payments by 80% and under the guise of negotiating with the funders, Csantaveri told his victims to direct the payments meant for their funders to an escrow account. He then promptly forwarded the money to his own personal accounts, leaving the merchants trying to figure out what happened when their funder contacted them asking what happened to their payments.
Happily, Csantaveri and his cronies have been charged for their crimes and face decades of prison and steep fines, but these stories are too common in our industry. Every few weeks we hear of businesses getting cheated and defrauded, and unfortunately rarely are the schemes particularly imaginative or unusually unavoidable. deBanked has been on streak recently, publishing blockbuster features about the underbelly of the merchant cash advance business, and yet despite all the warnings, it just keeps happening over and over again.
Cash advance companies have an obligation to proactively protect themselves. And luckily, there are clear ways to do that.
Preventative Step 1: Clearly communicate with the merchant.
Merchant cash advance is a hungry game, and we’re always chasing the next client, the next close, the next commission. This need for speed is often an asset, but when we’re dealing with clients in perilous financial situations who are desperate for quick fixes, it is extremely unwise to deal with them hastily.
It must be clearly communicated to clients the terms of the deal they are accepting, and what exactly they are committing to. They must be reminded that the only people authorized to negotiate the terms of this arrangement are the two parties that signed it, and there are no “white knight saviors” that have any way of interceding on their behalf. If they’re having trouble meeting their obligations, they should feel comfortable letting their funder know, and both parties can work together on finding a mutually beneficial solution.
Preventative Step 2: Actively monitor your deals.
Making sure to actively stay on top of deals is how to avoid things going sideways.
Thanks to industry-customized CRMs such as MCA-Track, LendSaas and Orgmeter, merchant cash advance companies can keep in regular touch with their merchants, while easily tracking the progress of the deals throughout their term lengths.
For example, MCA-Track allows funders to monitor the bank activity of their merchants to see if they’re putting themselves in further financial entanglements by diverting payments, taking on additional advances, or are having outgoing payments bounced. If a funder sees any of that happening, they can step in and connect with the client to proactively ensure everything is still in order, and if it’s not, iron out any issues before they balloon into a much larger problem.
Embracing the available platforms to remain vigilant, and consistently reviewing the sustained health of your deals can help avoid a lot of stress down the road.
Preventative Step 3: Have a go-to financial professional.
This is the step I am personally passionate about for obvious reasons.
Better Accounting Solutions has had the privilege of serving the cash advance industry for well over a decade, and I’ve been a consistent evangelist for companies to embrace outside financial counsel–particularly those with experience in our business–to avoid getting into these issues in the first place.
Businesses need independent financial experts to ensure transparency, prevent bias, and avoid conflicts of interest. The benefits of using MCA experienced firms (any firm!), instead of in-house accountants, are obvious: it removes the danger of assuming a myopic view of what is happening in the industry only analyzed through the lens of just one company, ensures trust and transparency between funders and syndicators, and prevents misappropriation of funds.
Sometimes businesses settle on using any accounting firm, with no experience in MCA accounting, but that can lead to more issues than you had before they were engaged. The danger lies in you thinking everything is being handled and in compliance with the relevant regulations, when in fact they don’t know how to navigate the challenging financial world of our industry.
The industry as a whole is tarnished when crooks are able to circumvent systems meant to protect us all. Staying financially aware and employing these best practices is the key to ensuring it can’t happen again.
After Tax Day: A Guide for MCA Companies
April 23, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
Congratulations- you’ve survived Tax Day!
About 130 million tax returns were filed by Monday’s April 15 deadline, and business owners, employees and accountants will all breathe a sigh of relief and wait for the refunds to roll in.
Let’s explore what the next few months look like for those that successfully lodged their documents in time with the IRS, and those that didn’t.
I Am Amazing Because I Filed My Taxes On Time
Yes, you are incredible. Good job!
Having successfully sorted through your finances and organized it for the IRS, now is the best time to set yourself up to have an easier time filing in 2025.
Here’s a quick checklist of things you can fix now to make your life easier:
- Did you give yourself enough time to send W-2’s and 1099 documents to your employees and contractors?
- Did you make sure your employees and contractors have gave you a filled out W-4 or W9 on time?
- Were all your deals categorized and classified correctly by your bookkeeping company,or did your accountant have to constantly follow up with you to ensure he understood what deal was doing what?
- Was every deal conducted in different states accounted for tax purposes?
- Did you have all your documentation available and in order?
- Is your industry tailored CRM getting you all the information you need?
- Did your accountant prepare you for any taxes or surprise liabilities you may have incurred?
Knowing the answers to these questions can help you understand whether you had a great experience during this year’s tax season, or if you should begin to explore and implement new processes to shore up your team, books and reporting structure going forward.
I Have Not Filed Taxes Yet For Many Good Reasons
Yes, you are incredible too, and we can’t judge you for having very good reasons to miss the deadline. Here’s some information you need to know:
What happens if I miss the tax deadline but expect a refund?
If you’re sure you are due a refund from your 2023 tax return, you won’t face any penalties for an individual return late. You have up to three years to file and still get your refund, which might take four to six weeks to receive after you file. But for business and partnership filings, most states on your partnerships and business returns for filing late even if you don’t owe anything.
What are the consequences of missing the deadline when I owe taxes?
If you miss the deadline and owe money without filing an extension, you will face penalties for both late filing and late payment, plus interest on the owed amount until it’s fully paid. The state you are in will determine how severe the penalties will be.
What are the specific penalties for late tax filings?
The IRS imposes a failure-to-file penalty, typically 5% of the unpaid taxes each month, capped at 25%, and a minimum penalty if over 60 days late. There’s also a failure-to-pay penalty, about 0.5% of unpaid taxes per month, also capped at 25%.
Can I still file for an extension if the deadline is near?
Yes, you can file for an extension by the tax deadline, which gives you six more months to file your tax return. However, you need to estimate and pay any taxes owed by the original deadline to avoid penalties, and some states won’t even accept the extension unless the estimated taxes are paid.
What if I can’t pay the full amount I owe right away?
You can arrange a payment plan with the IRS if you can’t pay immediately. Short-term plans for up to 180 days are available at no cost, though interest and penalties still apply. For longer needs, long-term payment plans are available with varying fees.
Working with an experienced tax accountant specializing in your industry, in this case merchant cash advance accounting, can ensure you’re always on top of your finances and handle the specific challenges of your field effectively. This specialized knowledge helps in correctly filing tax returns, spotting potential tax reductions, maximizing returns and customizing strategies specially tailored for your business. If you’ve got any questions on your 2023 taxes or how to plan ahead for 2024, your friends at Better Accounting Solutions are always here to help.
How Merchant Cash Advance Companies Can Avoid Problems This Tax Season
April 2, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
In the fast-paced and ever changing world of cash advance, tax season can often present a labyrinth of compliance and reporting challenges. These challenges are not just bureaucratic hurdles that must be overcome; they also serve as crucial tests of a company’s financial health and operational integrity. Given the intense scrutiny the cash advance industry faces from regulatory bodies, particularly in light of recent industry shaking events, alongside the unique nature of how its financial transactions can be structured, ensuring tax compliance is not just advisable—it’s essential. Let’s discuss frequent speed bumps cash advance companies encounter during tax season, and some solutions for these problems.
Misclassification of Income and Advances
One of the most significant stumbling blocks for cash advance businesses lies in the misclassification of the funds they advance to customers. This misstep can lead to serious tax implications, distorting the financial understanding of a company in the eyes of the law. A robust accounting system that accurately differentiates loans, advances, and income is not just a recommendation; it’s a necessity. Each category must be meticulously reported for tax purposes, a task that underscores the importance of seeking guidance from a tax professional well-versed in the nuances and implications of these classifications.
Misreporting Income
A common oversight among cash advance companies is the inaccurate reporting of income. Whether it’s underreporting or misclassifying earnings, the repercussions can be severe, and include the possibility of triggering an audit or incurring a severe financial penalty. The remedy? An accounting software tailored for the funding industry (such as Orgmeter, MCA-Track, OnyxIQ, Centrex, or LendSaas), capable of automating the calculation and reporting all necessary metrics and income. This ensures not only compliance but also a transparent overview of a company’s financial health that benefits you as well.
State-Specific Tax Obligations
Just over 5 years ago, Wayfair was successfully sued by South Dakota for failing to tax online sales even though they had no physical presence in the state, beginning a new era of legal understanding of state tax obligations in the internet and cross-state trade era.The complexity of tax compliance is magnified for cash advance companies operating across state lines, each with its unique tax laws and regulations. This multi-state maze can easily lead to oversight or misunderstanding, risking non-compliance. The solution is twofold: developing a comprehensive compliance checklist for each state and consulting with tax professionals who specialize in navigating these multi-state operations. Together, these strategies form a bulwark against the many possible blind spots of state-specific tax obligations.
Documentation for Audits
Not having the correct documentation and record-keeping on hand can transform a routine tax audit into a nightmare scenario, and cause businesses to be slapped with heavy penalties and fines. To counter this risk, cash advance companies need to maintain meticulous records of all transactions. Experts often recommend businesses conduct regular audits, whether internal or external, to ensure these records are both accurate and will back you up when they are needed.
Planning for Tax Liabilities
Perhaps one of the easiest mistakes to avoid is not adequately planning for surprise tax liabilities. Without planning in advance and setting aside sufficient funds to cover these obligations, companies can find themselves in a precarious cash flow situation when taxes are due. A proactive strategy to counter that involves specifically marking off a portion of income in a dedicated account for unforeseen expenditures (tax liabilities included), calculated with an estimated effective tax rate. This approach, developed with the assistance of a tax professional, can prevent the unwelcome surprise of a hefty tax bill when you’re not ready for it.
At the end of the day, tax compliance, while definitely not fun, should not be viewed (just) as a regulatory pain-in-the-butt, but as a way to ensure a cash advance business’s success and longevity. By embracing proactive tax planning and compliance, companies can not only successfully navigate the complexities of tax season but also reinforce the integrity and sustainability of their business and ensure their success and viability for years to come, free from any stress or government microscope.
Cash (Basis) is King
March 1, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
Tax season is upon us, and it’s the worst.
Aside from wading through scores of financial documents and dealing with a million questions, it’s a fact that our government is purposely opaque in how it accounts for the tax dollars they take from business owners, and simply don’t know what it’s like to actually have a job that doesn’t involve overegulating others. On top of that, the merchant cash advance space is a difficult one to define and operate in for its different categories of advances and investors. As a result of all this, tax season can be complicated and difficult.
It’s for this reason that Better Accounting Solutions services many cash advance businesses- so let me explain what we do and why to make it easier for our clients, and-hopefully- easier for you as well.
Loans are easy to account for: there is simply the principal amount and interest. By contrast, cash advances involve the purchase of future receivables with different metrics, durations and structures for how it is paid.
Because of this, Better Accounting Solutions are big proponents of the cash basis accounting method (if a business makes less than $10 million in actual annual revenue): only recognizing the income when it is received, instead of when the transactions are made but before any money is actually seen.
To explain the concept, consider this example we’ve used before:
A merchant cash advance provider funds a merchant with $100,000 at a commission expense of 12% and a Closing Fee income of 10%. The bank fee income and RTR/Factor Rate is .5, while the merchant will pay back $150,000, $1,500 daily assuming a 100 day duration.
In terms of handling the books, we’d recommend recognizing the commission expense and closing fee income immediately (in most scenarios) on the day the advance is given, deducted from the funded amount.
But with the factor income, no additional income would be recognized until the full contract funded amount of $100,000 is received in the funder’s bank account (not just the amount wired). Once the contract amount is fully received on a cash basis, any payments received after that point constitute factor income or RTR income.
We recommend recognizing income and filing this way because, simply by reporting on a cash basis, you are deferring the recognized tax income.
This means that for all the deals in the process of being paid by the time the financial year is over do not need to be recognized for tax purposes until the next year when the full amount is back in your account, thereby deferring your tax liabilities.This means you have more time to spend that money and grow your actual business, which is obviously the reason we all do what we do.
When done simply, without over bureaucratic machinations, and with professional assistance, taxes don’t have to be a painful and difficult experience, and can even be a boon to your cash flow when done right. Make 2024 the year you show Uncle Sam you know your way around the tax system, no matter what they throw at you.
It’s essential to emphasize that this article is for informational purposes only and should not be construed as personal accounting or financial advice. It’s strongly recommended for funders and companies to seek guidance from qualified accountants or financial professionals to ensure compliance with accounting standards and tax regulations tailored to their specific circumstances.
Mastering Taxes for Merchant Cash Advance Businesses – Cash Basis 101
December 7, 2023David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
For funders in the merchant cash advance industry, navigating through various funding scenarios is a common challenge. There are many different ways to fund your MCA business–including institutional money, using your own funds, partnering with syndicators, or involving outside investors– and understanding how to recognize income for reporting to your partner, syndicators, investors and the IRS is essential to avoid tax and compliance issues down the line.
When I started Better Accounting Solutions in 2011 and began working with clients in our industry, I found the accounting world wholly unprepared for the different funding streams MCA businesses worked with, and in the years since, we’ve managed to systematize and customize the income recognition process for the entire industry, particularly in the context of accrual basis reporting, as we’ve become more and more ingrained in the space..
Let’s explain how, starting by exploring the different funding scenarios your business might find itself in:
Using Company’s Own Funds: Some funders rely solely on their own company’s money to provide advances. In this scenario, the funding is entirely self-financed, and the company does not seek external investments.
Equity Partner of the Funding Company as Syndicators: Other funders collaborate with partners who contribute money as syndicators, in addition to using the company’s funds. This means that both the company and its partners are involved in funding the deals.
Outside Syndicators and Investments: Certain companies involve outside syndicators, who are not part of the company’s core team or partners, to provide additional funding. This setup allows the company to expand its funding capacity beyond internal resources and institutional investors.
Income Recognition for Reporting and Tax Purposes
Typically, for funders using their own company’s money, there are two primary ways to recognize income— one for reporting purposes and the other for tax purposes.
Cash Basis Reporting: Cash basis reporting recognizes income and expenses when actual cash is received or paid. In this method, income is recognized when the money hits the bank account, and expenses are recognized when the money leaves the credit card or bank account.
Accrual Basis Reporting (GAAP): Accrual basis reporting, also known as Generally Accepted Accounting Principles (GAAP) reporting, is used by Certified Public Accountants (CPAs) when auditing financial statements. Unlike cash basis reporting, accrual basis recognizes income when earned, regardless of when the cash is received, and expenses are recognized when they are accrued. (More about GAAP in a future article)
Challenges in Income Recognition for Merchant Cash Advance
Recognizing income in the merchant cash advance industry can be complex, especially when dealing with cash advances rather than traditional loans. Unlike loans, where regular payments consist of interest and principal, merchant cash advances involve the purchase of future receivables.
Consider this example: A merchant cash advance provider funds a merchant with $100,000 at a commission expense of 12% and a Junk Fee income of 10%. The bank fee income and RTR/Factor Rate is.5, while the merchant will pay back $150,000, $1,500 daily assuming a 100 day duration.
Cash Advance Income Recognition Approach in Cash Basis Accounting:
Because of this unique funding structure, here’s how my team at Better Accounting Solutions recommends reporting the income (BAS will typically use Accrual Basis reporting for business owners, and note-holder investors, and cash basis for tax reporting if the company’s revenue is less than $10 million annually):
Commission Expense and Junk Fee Income: The commission expense and junk fee income are recognized immediately (in most scenarios) on the day the advance is given, deducted from the funded amount.
Factor Income: Until the full contract funded amount of $100,000 is received in the funder’s bank account (not just the amount wired), no additional income is recognized. Once the contract amount is fully received on a cash basis, any payments received after that point constitute factor income or RTR income.
What’s the benefit of reporting this way?
By reporting on a cash basis you are deferring the recognized tax income. For example, if you have a deal that was funded in November over five months, you will have been only about forty percent in the payback by the time the tax calendar year is over. Since you would have not received the contract funded amount back yet , you would not recognize any of the factor income for tax purposes until the following year, thereby deferring your tax liability. This means you have more time to spend that money and grow your actual business.
It’s important to acknowledge that accounting practices can vary, and accountants may have differing opinions on income recognition. The approach outlined here is definitely an aggressive method, but one I continue advocating using for IRS and tax purposes, for the reasons listed above.
As we’ve said, navigating income recognition in the merchant cash advance industry can be challenging due to the unique nature of cash advances. Understanding the funding scenarios, recognizing income for reporting and tax purposes, and considering different accounting methods are crucial for funders and companies in this space, and will give you a leg up come Tax Season.
It’s essential to emphasize that this article is for informational purposes only and should not be construed as accounting or financial advice. It’s strongly recommended for funders and companies to seek guidance from qualified accountants or financial professionals to ensure compliance with accounting standards and tax regulations tailored to their specific circumstances.
Why I’m An Evangelist…. For Outside Accounting Firms in MCA
November 9, 2023David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
For over a decade, since the explosion of the merchant cash advance industry in the United States, my team and I at Better Accounting Solutions have been working with a growing number of people and businesses involved in the industry, including brokers, funders, syndicators and investors. We’ve spent time meeting and mingling with you at industry events like Broker Fair and spent more hours talking on the phone advising you than we can bill for.
All this experience has led me to one conclusion, one reinforced the longer we work together with many of you: to thrive and be successful in the merchant cash advance industry, you need a third-party independent financial expert embedded in your business and books.
To declare the obvious context and biases up front: yes, this benefits businesses like mine and yes, I know this from working with many of you. But people become knowledgeable and experts in their own field that they’ve spent years studying and developing, which is why I feel qualified to discuss this.
In the ever-evolving world of merchant cash advance and its challenging relationship with transparency and ethics, trust with your business partners is a must.
Having independent third-party financial experts that report to both parties-for example between a funder and their syndicators- is the only way to ensure complete transparency without bias or conflict. It eliminates the possibility of the funder misappropriating the syndicator’s investment and skimming off what the investors are owed. Firms like ours excel in tracking the numbers to see the deals that are working and the ones that aren’t, and can demonstrate what is trending down to stop a bad deal from spiraling into a company-killing problem.
People often choose to rely on a single in-house accountant to manage their books because they want exclusive focus, but there are plenty of downsides to that as well. Not only are accountants hired from another corporate job rarely equipped to accurately track deals in the complicated world of cash advance, but they are also incentivized to make their reports as favorable as they can to their own company, which may scare syndicators and investors whom they have no obligations to. By outsourcing these critical functions to a specialized firm, MCA funders send a clear message to investors and syndicators: they take financial accountability seriously and they are a trustworthy and transparent business to work with, with open books for their partners to peer in.
Industry scandals that bring our profession into disrepute- such as the collapses of MJ Capital Funding, LLC and 1 Global Capital– were able to happen because the investors pouring money into what they thought were legitimate MCA businesses weren’t given access to the companies books until it was too late and hundreds of millions of dollars were forever lost.
Obviously, you should be wise about people’s motives, even mine as the author of this article, but you should also take every piece of advice into consideration, particularly one that objectively suggests measures that fosters and promote trust and better business growth practices.
Remember, in the world of finance, trust is the most valuable asset of all.
