What do if You Can't Get Capital

Can't get capital

Can't Get Capital

Can’t get capital? Maybe this will help. Some businesses are lucky enough to experience growth year after year. But fast growth can create its own set of challenges. These businesses can find themselves without the business systems in place to keep the business operating optimally. 

We want to introduce you to Art. Because he had been growing quickly, he didn’t have the right systems in place to ensure you have enough cash on hand. This happens to a lot of successful businesses who have been so focused on growth that other problems crept in.

Art's Story

“The business is going great, but I wish it looked that way to my creditors. We’ve been growing so fast that we aren’t always that great at sending out invoices and following up to make sure that they are paid on time. We’ve been late on a few payments and have had some close calls on payroll. I know we need to get better, but if I put more people on it, I wouldn’t be able to keep growing so fast.”

Art’s business is booming. He’s grown rapidly in size, and he continues to grow quickly. Unfortunately, Art does a lot of business with both the local and federal government. So, it takes him a while to get paid for the services he provides. He has staff, overhead, and suppliers to pay monthly, and sometimes, he’s found himself running a bit short on cash and struggles to get capital.

This isn’t an uncommon problem. Everyone gets excited and likes to do the thing he or she does best. It’s easy not to focus on those areas we don’t like or don’t understand. However, that’s what can take a great business down. It’s important to fix those gaps before they become major anchors weighing down your growth.

How We Helped Art when he couldn't get capital

The front of the tile describes the problem. Flip it to see the solution.

Took Too Long To Get Paid

First, Art didn't know you could run an accounts-receivable aging report. This is a chart of all the money customers owe you and the time between the issuing of the invoice (completion of the work) and getting paid. Art's average age was nearly 90 days. Art paid his employees every two weeks and had all the normal monthly bills. We also noticed that Art had some seasonal spikes in his business. All of these three factors were causing havoc on his cash flow

Set up an Ageing Report

We set up an accounts receivable aging report review every month. While Art didn't have much flexibility with his payment terms, he could have a better picture of when money should be coming in. We also created a collections role. This person would call all customers two weeks prior to the due date to ensure payment was processing, on the due date itself, AND weekly afterward if the payment wasn't made

Running Too Low on Cash

It was clear we needed to get some financing to fix the gap between when money was coming vs. when money was going out. Because Art's business credit had suffered a bit, we limited the number of financing options available to us.

The First Step: Getting Funds

Because Art's business credit had suffered a bit, we limited the number of financing options available to us. We needed cash in order to fix our credit, so we had to work with what we had. We were able to line up and alternative lender and had to some invoice factoring, but we got the cash we need. Now, we had to move on to step 2

Business Credit Wasn't Ideal

Even though the business was profitable, because Art had been behind in paying bills a couple of times, It damaged his credit some. Because of this, we had to live with higher interest on our debt during our first loans. While not ideal, it was necessary to clean and polish Art's credit score. Due to the nature of the business, there would always be a need for cash management, so raising his score was imperative since it meant lower rates.

Step 2: Fixed His Credit Score

We didn't want to be saddled with factoring invoices and using alternative lenders long-term, so we put an accounts-payable tracking system in place. The person in charge of collections was also put in charge of bill paying. That way, we always had a person who knew the status of both income and spending After a year of solid payments, Art's business credit was substantially improved. Therefore, we were able to secure an SBA backed line of credit and SBA loan to which we transferred the loans from the prior year.

If you are having issues like Art, they can be solved with a little planning and time.  It will go a little faster with help.  If Art’s case wasn’t right for you, take the business assessment to get a guide that’s better suited for your issues. Otherwise, feel free to contact us to book your complimentary strategy call.