Funding your online advertising business can be tricky, mainly because of delayed payment terms. Most ad businesses earn money from display ads, but don’t get paid for months. When you have to wait to get paid, it creates a bigger capital need. The longer you wait, the more money you need to generate new sales. Be it a Facebook ad campaign, install campaign, or executing on a new IO – the wait game is real. Here are some tricks and tips to help you “bridge the gap”, so you can scale with ease.
Ways to Fund Your Online Advertising Business
There are multiple ways to fund your business. The most common funding happens with outside money, but the better options don’t require outside money. The number one funding available is customer revenue, paid early or upfront.
Get Paid Upfront By Advertisers
If you’re monetizing with a big platform like Google or Index Exchange, you won’t be able to negotiate. Their terms are set in stone. But if you have a “direct” deal, where the advertiser pays you directly (without an exchange like Google), you could request that advertisers pay you upfront. This is commonly done for sponsored posts, where an advertiser creates a piece of content for your website, and pays for it to be published (i.e. the content is “sponsored”).
Longer Pay Terms With Vendors
Another great way to fund your business is to delay pay terms with vendors. This allows you to match cash in with cash out. Imagine if you could spend on Facebook for weeks, before having to cough up the money. Unfortunately Facebook and others aren’t in the credit-extension game. You have to pay upfront or weekly. Only super big advertisers can get “credit terms” for 30 days, if that.
Do Your Media Buying Through An Agency
One way to extend pay terms with vendors is to use an agency for acquisition campaigns. Typically, media buying agencies spend their own capital on the advertising, then invoice you for the remainder, due later. By using an agency, you can obtain favorable pay terms and indirectly extend payment terms to “vendors” like Facebook through the agency.
In an ideal world, you get paid by customers upfront, and pay vendors later. But the world isn’t ideal sometimes.
Use Your Own Cash
The last organic option to funding your business is to use your own cash. If you use your own cash, and wait to get paid, your profits will be tied up in your cash flow life cycle for a long time. Although you preserve equity and don’t take on any debt, this option can be painful, especially if things don’t pan out.
Traditional Outside Funding Options
There are multiple funding solutions available for online advertising businesses. The common ones are banks, venture capital, and credit cards.
Bank Money: Cheap, But Lots of Red Tape
If you’re big enough, you can secure bank debt to fund your business. The ideal solution here is a line of credit. With a line of credit you can draw funds (debt) to pay for acquisition, and pay the line of credit down after you get paid by advertisers. This is called “revolving” your line of credit.
At a minimum, banks will require 2-3 years of tax returns, $500K in annual revenue, security on all business assets, and a personal guarantee. The biggest pain point with banks is they will cap your growth. If you quickly outgrow the bank, they won’t be quick to increase your limit. That, plus the fact that there is so much red tape and closing is a slow moving process doesn’t make this the most ideal (although it is the cheapest).
Venture Capital: Give Up Profits For Life
Beware of venture capital. The moment you take funds from VCs, they now have a seat at the table. This could create conflict if you don’t share the same vision as them. They will also take a percentage of profits for life, so if your business really takes off, you’ll be giving up a big piece of the upside “pie”. Venture capital is by far the most expensive type of capital you can ever take on.
Credit Cards: Expensive, Risky Leverage
Credit cards are cool because they offer points, but at the end of the day the money you can get is very risky capital. The average interest rate is in the mid-20s%. Not only is it expensive, but it’s leverage – if you use a credit card for acquisition purposes, and one of your customers doesn’t pay, you’re out 2X the money. Your customer owes you, and you owe the credit card company. Not a good position to be in.
Creative Funding Options for The New Era
One creative funding option for your online advertising business combines “outside capital” with “shorter pay terms”. That solution, similar to what we offer, is a lot like traditional accounts receivable financing. The way it works is you get up to 80-95% of the money advertisers owe you, paid now.
How OAREX works to fund your online advertising business:
- Get up to 95% of the pending cash flows from media partners, through a Purchase agreement, from a list of 500+ approved partners.
- OAREX collect the receipts from your advertising partners. We take the full credit and platform risk that your partners don’t pay.
- After OAREX collects revenues, we’ll square up and send the remaining 5-20% we didn’t fund, minus our fees. This is the remaining part of the purchase price we didn’t send you.
- Once you’re set-up, you can tap into liquidity anytime, to exploit hot acquisition campaigns, lure a major publisher with early pay terms, or take on a new IO.
We try to be flexible, so we don’t believe in set-up fees, personal guarantees, credit checks, commitments, termination fees, or penalties.
Explore The Hard & Soft Elements of Every Deal
Whatever you do, be sure to explore all options. You need to find the right capital solution that fits the hard criteria and the soft criteria you want. Hard criteria includes price, structure, term, penalties, fees, etc. Soft criteria is the simple but important stuff, like, how much do you like the person or firm? Are they easy to work with? What are their reviews? You don’t want to take cheap money from a company if they have poor reviews. Be sure to explore the hard and soft components, for every type of deal.