Some words of wisdom from my friend Marcus at Flight Crew Wealth
Growing properly…
Over the past few weeks I have been focused on helping some friends refinance their company. This is the main reason that I have not been able to get online to write an adequate blog. However, as we are nearing the deadline I cannot help but write a quick message to all of you encouraging you to grow your companies properly.
All too often we find a way to borrow some money from ourselves (home equity, credit cards, etc…) or our family members (parents, siblings, etc…). To be honest these are some of the most accessible sources for each of us. However there is a cost associated with each. This cost can eventually be the downfall of your endeavor.
The company that I am currently advising has a great product and is carried in stores in several different countries. The have spent the last 6 years honing their product offerings to the point that they now have it nailed. The retail stores love the product and place orders on a regular basis. So all is great and they are ready to takeoff, or are they?
Over the 6 year period the owners chose to grow the business, try different products, and market through the usage of the corporate credit cards. After the downturn in the economy the Credit Card Companies reduced the credit limit and increased the interest rate. Unfortuantely it has created the perfect storm.
Currently the business owners have determined that they can no longer grow the business on credit cards and they need to secure financing. This will reduce their monthly costs associated with debt servicing and provide cash flow to purchase more merchandise. Without the money to buy more product they cannot fill orders that they are receiving on a daily basis.
At first this did not make sense to me… How could you have a problem when orders keep coming in? Then we broke the numbers down and realized that with the high interest rates on the cards there was no way to make progress. Each time a full shipment of product was sold they lost money. In other words even selling all of their stock did not pay for the purchase price of that stock and the interest on the debt.
As we move forward we are all seeking various financial options and we are determined to find the money or the owners will shut the company down and take a loss on the debt.
It is very difficult to accept that a company, that is poised for such explosive growth, faces such an uncertain future. Unfortunately this is the fate of many companies every year, from mom and pop companies to major financial instituations. It is also a clear message that you must grow your company responsibly. Even if you finally make it and you are poised for growth you can still lose it all!
All too often we find a way to borrow some money from ourselves (home equity, credit cards, etc…) or our family members (parents, siblings, etc…). To be honest these are some of the most accessible sources for each of us. However there is a cost associated with each. This cost can eventually be the downfall of your endeavor.
The company that I am currently advising has a great product and is carried in stores in several different countries. The have spent the last 6 years honing their product offerings to the point that they now have it nailed. The retail stores love the product and place orders on a regular basis. So all is great and they are ready to takeoff, or are they?
Over the 6 year period the owners chose to grow the business, try different products, and market through the usage of the corporate credit cards. After the downturn in the economy the Credit Card Companies reduced the credit limit and increased the interest rate. Unfortuantely it has created the perfect storm.
Currently the business owners have determined that they can no longer grow the business on credit cards and they need to secure financing. This will reduce their monthly costs associated with debt servicing and provide cash flow to purchase more merchandise. Without the money to buy more product they cannot fill orders that they are receiving on a daily basis.
At first this did not make sense to me… How could you have a problem when orders keep coming in? Then we broke the numbers down and realized that with the high interest rates on the cards there was no way to make progress. Each time a full shipment of product was sold they lost money. In other words even selling all of their stock did not pay for the purchase price of that stock and the interest on the debt.
As we move forward we are all seeking various financial options and we are determined to find the money or the owners will shut the company down and take a loss on the debt.
It is very difficult to accept that a company, that is poised for such explosive growth, faces such an uncertain future. Unfortunately this is the fate of many companies every year, from mom and pop companies to major financial instituations. It is also a clear message that you must grow your company responsibly. Even if you finally make it and you are poised for growth you can still lose it all!
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