Working capital is the thief in the night that steals the cash you thought more revenue would leave in your bank account. 

Growth is good. I don't have to convince you of this - bigger is better is a key underpinning of the US economy. More business means more cashflow, means less likely to fail, right? Not always. 

A larger business doesn't necessarily mean more cash. Wait, your telling me if I grow my business I will have LESS cash? Often this is true. Why? Where is the money going? It's fueling growth. It's not just a matter of more debt payments, cash expenditures etc. for your new facility, location or R&D, though. 

The key cash killer of most growing businesses is working capital. Working capital it allusive because it isn't a a clear cost. It isn't part of your Profit & Loss Statement and it probably isn't a KPI (metric) that you are watching. 

Working capital is the thief in the night that steals the cash you thought more revenue would leave in your bank account. 

How does this thief steal your cash? It's all about timing. 

I worked with a client recently who was at a loss for where her cash was going. "I'm growing, I have more revenue than I did last year, more customer traffic, yet I still don't have cash in the bank, where is it?" She was building her dream, but also drowning in it. 

Watching the cash in her bank account, praying for enough cash to make payroll every month. "It's in this room" I told her, looking around the beautifully appointed well stocked building. As her business had become more "successful", as revenue went up, she bought more inventory to impress and delight her customers. She had boxes of spare product in a back room. She did not ever want to run out of something a top client wanted. Customer delight was her goal and ambition. And on that front she was doing an incredible job. 

But the cost of paying for goods 15-45 days before she sold them, then waiting 15-30 days for payment from credit card companies after customer purchases was killing her business. She had to buy the product (with cash) on average 45 days before she received any cash from her customers. She was consuming all the cash she generated, plus some she was borrowing from a bank to buy more inventory.

The money she needed to start paying down debt and increase her own pay was sitting in her back room. It was sitting on her shelves insuring that her very best customers didn't have to wait to purchase any item they wanted. But was the cost of their delight too high? 

In this case I would argue yes, because the cash crunch was killing her business. More inventory, meant more time on the shelves for each item. This increased the time between when she paid her vendors and when she received cash from customers. More inventory also meant less cash, more debt. And high interest rates meant an increasing debt balance that at her current payment rate meant falling deeper into debt. 

The "working capital gap" has killed many many growth companies. The "gap" is the time between when you pay your suppliers (including debt service, inventory and even payroll) and when you receive money from your customers. If you can shorten that gap, sometimes just a little bit, you can change the cash equation and possibly even save your business.

Relief Financial can help you set up processes to improve the cashflow of your business. Please email blair@relieffinancialconsulting.com for more information. 

Growing your business is exciting. Nearly every small business owner I have spoken to says they would never go back. 

The concept of fundraising tends to dampen this enthusiasm. Many entrepreneurs would rather walk over hot coals or spend months of sleepless nights hoping they can make payroll than talk to a bank or an equity provider. The books will be dissected. Painful, nit-picky questions will be asked about controls, reporting, timing. No one has time for that! 

Why not just wait until you actually need the money to fund raise? When you won't be able to make payroll if you don't bridge the gap or you are on the verge of a big expansion, but just need a small bridge loan. Then it will be worth those hours of cleanup and questions from information hungry bankers and investors. Why not just wait? 

Because the absolute WORST time to fund raise, debt or equity, is when you need the money. I know, it's counterintuitive. But if you wait until you need the money, you are too late. 

A fund raise takes time. It can take three to twelve months to raise capital. Timing depends on several factors, including:

• How your books have been put together
• The volume of transactions in your business
• The risk tolerance of the bank or equity provider to your industry
• Finding the right partner and best terms for your busines can take time

IS MY BUSINESS READY?

For A Loan: First, your financial books are consistent, timely (books are closed 2-3 weeks after month end), there is historical data (going back two to three years), and everything is in the format the bank is looking for. 

Second, you have answers to all their questions within a day or two of request. In this ideal situation, the banker can put together a package, run it by his boss, ask you a few more questions, go to the committee, ask you a few more questions and finally get the loan approved by his or her board. Once the loan is approved it is time to draw up the paperwork. This can take several more weeks. All of this before the first check is written. 

For Equity: Many of my clients assume equity is easier. Equity is more risk tolerant, so venture capital and private equity will be easier to raise than debt, right? Unless you are raising money from Uncle Phil, who trusts you implicitly, has the ability to easily write a check, and who already knows your business inside and out, it's not.

Uncle Phil knows you, knows your story, the milestones you have achieved, and the commitment you have to this business. Ms. Smith or Mr. Doe at XYZ ventures do not know you or your business. They often have not met you until you consider raising capital. It takes time to build these types of relationships. They will ask 100 questions not because they think your business is a bad business. They may be very excited about your business, but they do not know you or your business - yet.

It can take months, even years, to build up trust with an equity partner. It is never too soon to get in front of equity partners. Talk to a few about your business, ask if it is a good fit for their fund, if not, ask which fund it might be a good fit for. Find people that are excited about your business. Take the time to find well-funded, supportive, investors that will stand with you if you hit a road bump. Trust goes both ways. There is nothing more destructive to a business than a bad partnership with a capital provider. 

If you need help preparing for a capital raise, never hesitate to call. We can do a preliminary assessment on whether you are ready to approach debt or equity investors. Then provide additional steps to improve your fund raise. Please email blair@relieffinancialconsulting.com for more information. 

Have you ever thought: "I know my business, I should be making more money on the bottom line, what's going on?" You are not alone. This is an age-old complaint from every business owner, no matter the size. But the big guys have a team of financial advisors and bean counters - surely you need all those people to get the kind of insights they have. 

This is false. It is a myth. You have something the big guys don't have. You are a lean organization, not complicated by massive corporate overhead and giant departments covering everything from HR to Paper Acquisition Specialist. You're advantage is you know your business inside and out. You are the key strategy specialist and the operations coordinator, you don't have to call in a team to tell you what's going on down in printing - you just replaced the ink in the printer.

But you don't have to everything alone. There are tools to help you figure out your business's financial situation without a CPA, MBA, CFA, CFO or any other acronym. If you are strapped for cash and worried about what's being spent within your organization – try using a free online tool. Mint.com is a wonderful personal finance tool, it is also a wonderful general finance tool. Go ahead, plug your business bank accounts, loans, company credit cards, etc. into a Mint account. Set flags to email you when a big ticket item is purchased or a budget hit for the month. You can even set alerts for large deposits - Mint.com can tell you when you get paid. 

Over the last ten years, it has become so much simpler to start a business. I remember my first website in 2001, I am embarrassed admit it, but the background was black and the text was neon. Not in a good way. Thank you modern technology.

Don't limit yourself to a beautiful website. Run a beautiful company on the inside and the outside. 

As your business grows, you may need part time HR advice or advice in areas like finance and operations. Understanding where your business is going and what your chances of surviving the roller coaster are is essential. Your website helps you get customers, but who are they? Are they good or bad customers? Are there trends in your customer set? Who buys what? When do they buy it? How do you know? 

When you first start a business, it feels like the expenses keep mounting up. You need computers, work space, a phone number, email addresses, website, and what are you going to wear to a customer meeting? Once the revenue starts flowing, the pressure eases. Finally there is a something to stem the flow of money out of your pocket.

Then one day you realize the revenue number is bigger than the expense number. You are in business! You've done it, you've balanced the scales.

Now what?

Now it's time to look at where the money is coming from and where it is going. 

You have clients, i.e. revenue, but are they profitable? A first client can be the key to getting off the ground. As your business grows, though, you may realize the first adopters of your products aren't the bread and butter of your business anymore. They may even be the succubus. They take a lot of time, they take a lot of resources and while they have a positive gross margin - you may not be making as much on the bottom line as you planned.

Let's consider your business's expenses, are they the right ones? Do you need a bigger office space, a smaller one? A flashier one to impress clients or a cheaper, bigger one to hold the back office that just keeps growing? Maybe you are thinking about opening another location, but how will you finance it? How many locations can you reasonably open at a time?

When you get beyond your area of expertise. When you have that nagging feeling something isn't right, that you should be making more money or you wish you knew more about your business. It may be time to call in a part-time CFO or Small Business Financial Planner. Their job is to help you sort through your stack of current and future bills and get to the bottom of financial sinkholes efficiently. Their job is to provide you RELIEF when you need it, for as long (or as short) as you need it.  They may seem like just another expense item, but bringing in a financial advisor sooner can save you multiples of that expense. It could even save your business.